What Are the Best Fraud Prevention Techniques?

Establish a corporate culture of integrity.

The most important thing that you, as CEO, can do in and for your company is to establish a “corporate culture” of integrity. Such items as:

• Insist on total honesty with each other, vendors, clients and all persons with whom you deal with on a daily basis.
• Reward integrity and honesty.
• Protect “whistleblowers”
• Consider adopting an “ethics” policy, similar to that used in the PCAM program of CAI (copy attached)
• Train all levels of employees regarding the corporate ethics.
• Have a zero tolerance policy with regards to certain items.
• Kickbacks from vendors.
• Getting “favors” from vendors.
• Taking cash personally when it belongs to the Association.

Segregate duties when possible.

Whenever fraud requires collusion – that is, two or more people to be involved, the less likely that it will occur. Except when those two people are closely related in some manner, most fraud is a singular act.

Examples:
Different people should issue checks and perform bank reconciliation.
Different people should make bank deposit and post payments to A/R.
Different people should open the bank statement (and review quickly) and perform the bank reconciliation.

Random/surprise review of desk and work area or product.

This is a difficult one for some CEOs and most employees to accept. However, if is discussed up front and is unilaterally done on all employees, it can be an amazing deterrent to fraud.

Most frauds are “stumbled upon”. Randomly do some of the following:

• Open the employee’s mail before it gets to them (company mail, not personal).
• Check voice mail or e-mail (check with your attorneys re: privacy and needed wording to be able to do so).
• Ask clients and vendors about your employee.

In this same vein, insist on vacations and insist that someone else takes over that desk during the vacation time.

Reconcile bank statements promptly, and make sure that the board reviews all bank reconciliations.

In addition to this, have a copy of all bank statements sent directly to the treasurer. Most banks will do this for a minimum fee.

Have strict controls on cash.

This was discussed under the “How” section.

Have audits of your financial statements….

It’s not that audits will always catch fraud, because they won’t if the fraud is well planned. However, just knowing that the books will be audited is a deterrent to many fraudsters.

Keep an attitude of skepticism….

I know you are thinking “who wants to be the skeptic”, but, remember, you have a fiduciary duty to your clients and you owe it to yourself and your employees to protect your business and its reputation.

NEVER think-

• It can’t happen here.
• That person could never be a fraudster.