Fraud has a significant impact on businesses beyond losses and reputation damage. One of the many threats businesses face is fraudulent schemes from internal and external teams. The consequences of these activities ripple through the business, as it affects stakeholders at all levels.
The financial impact of fraud is primarily the most immediate and tangible consequences. Inflated expenses and fictitious transactions drain business resources and profits. Businesses also suffer from damaged reputations and loss of customer trust, so they should consider the following best practices for mitigating fraud.
1. Establish Strong Internal Controls
Solid controls are important for safeguarding businesses against fraudulent transactions, especially in the finance department. Rigid controls are the backbone of a businesses’ defense system, as it forms a structure for oversight and accountability.
The best control measure businesses should adopt is segregating duties. This essentially means dividing duties to prevent a situation where one employee has complete control over transactions. For instance, an employee who approves product/service purchases shouldn’t process payments.
Similarly, all financial transactions should undergo rigorous authorization processes with designated personnel who review and approve them before execution. This ensures all transactions are legitimate, well-documented, and aligned with company policies.
Businesses should also regularly reconcile their accounts, especially bank statements and financial records. Doing this helps detect discrepancies and anomalies often resulting from errors or potentially fraudulent activities. Nowadays, Best CRM for Outside Sales Reps is also very huge and play an important role in establishing strong internal controls.
2. Engage External Experts
Working with external experts is a strategic approach that enhances your business’s ability to identify fraud. Professionals, including those from Diligence International Group, have the necessary skills and can provide invaluable support to your internal efforts. Businesses can use them to identify, investigate, and mitigate fraud.
Most businesses often engage forensic accountants and fraud examiners in these situations. Forensic accountants help investigate accounting issues. They effortlessly conduct forensic audits and data analysis that help them identify fraudulent patterns. On the other hand, fraud examiners use various investigative techniques to recognize warning signs and evidence of fraud in an organization.
While these two groups of experts are vital, businesses should also consult technology consultants. They use advanced technologies to improve fraud detection capabilities. They assess the businesses’ existing technological infrastructure to identify vulnerabilities and recommend solutions that address and mitigate fraud risks.
3. Improve Employee Ethical Conduct
Encouraging your employees to adhere to ethical conduct is probably the best way to combat fraud. This is a culture that promotes integrity among them. That said, ethical conduct begins from the top. Leaders should set the tone and model for the behavior they expect from employees. Demonstrating integrity in actions and decisions sends a strong message to all employees.
Businesses should also have clear policies and standards of ethical conduct. There should be a framework and policies surrounding various business activities. These policies should clarify that employees must be honest and comply with ethical provisions.
Similarly, businesses should conduct regular training sessions. This should be done to raise awareness and equip employees with the necessary skills for the identification and reporting of fraud. Training should cover various topics, including decision-making, the importance of whistleblowing, and red flags of fraud.
Endnote
Fraud is a major hindrance to business success. Prompt identification and mitigation are crucial for a business to safeguard its financial integrity and stakeholder trust.
Adopting a multifaceted approach to the abovementioned tips can help businesses promptly detect and respond to fraud.