Here are a few measures your organization can implement to minimize fraudulent behavior and losses.

Timothy Ball, Executive Vice President, The Bonadio Group

September 7, 2022

4 Min Read

Since the Great Resignation in 2021, millions of employees across the nation have left their roles with current employers in search of better ones. According to Microsoft, 40% of employees reported they are considering leaving their current roles by the end of 2022. With many still working in remote or hybrid positions due to the pandemic, larger businesses have started implementing measures to gain a better understanding of employee morale and sentiment to prevent turnover.

While most employees leave companies on good terms, some may become extremely unhappy or disgruntled prior to their departure and are more likely to defraud the company either before leaving or on their way out the door. The unfortunate reality is that no business is immune to fraud, but luckily, there are several steps you can take to prevent it from happening.

Understand Contributors to Fraudulent Behavior

According to the Cressey Fraud Triangle, fraudulent behavior often occurs due to three contributing factors. These include pressure or motive to commit a fraud (usually a personal financial problem), perceived opportunity within the organization to commit a fraud (poor oversight or internal controls), and rationalization (the ability to justify the crime to make it seem acceptable).

Very often, a fraudster needs all three sides of the triangle to successfully commit a crime. Therefore, it is extremely important for organizations to do their best to create controls and understand the risk associated with each of these areas. For example, an employee may be disgruntled and also have personal financial issues. However, if internal controls are robust and the employee doesn't have access to financial instruments, valuable assets or software systems, their ability to defraud the company is extremely limited or will get identified immediately.

Additionally, there are actions an organization can take that may significantly mitigate the risk that an employee would find themselves in a situation where they could justify stealing from their employer, even if internal controls are limited or the employee is in a position of a high level of trust or authority. These including offering strong employee assistance programs, investing in the employee experience, exploring employee enrichment opportunities, surveying employees, monitoring morale, performing adequate exit interviews, and completing frequent anti-fraud training.

Create a Web of Fraud Detectors

There are typically eight key warning signs which may indicate an employee is more likely to commit fraud in an organization. According to the ACFE Global Fraud Survey, the top three are living beyond one's means, financial difficulties, and an unusually close association with a vendor/customer. Businesses must stay vigilant and identify potentially fraudulent behavior as soon as possible; monitoring for red flags among employees is often a helpful step.

Educating all employees about how to identify warning signs and report fraudulent activity is a beneficial practice for any business. According to that same ACFE Global Fraud Survey, organizations that implement fraud awareness training and other anti-fraud controls have seen quicker fraud detection and lower fraud losses as a result of their efforts. In fact, 42% of fraud is discovered by a tip, and 55% of all fraud is reported by employees of the company. Utilizing company employees to monitor for fraudulent behavior within the organization and creating a culture in which fraud is unacceptable under all circumstances are helpful in creating a team of full-time fraud detectors.

Create and Maintain Strong Internal Controls

There are many aspects about an employee's personal life that an employer can't control. And no matter how hard you try, an employer cannot always keep all employees engaged, satisfied and ultimately happy. But employers can control the opportunity side of the fraud triangle.

Establishing and maintaining strong and effective internal controls can greatly improve the chances that an organization either prevents fraudulent behavior or detects it before it can damage the company. Specifically, adequate fraud prevention controls over bank account activity, cash handling, purchasing and vendor management, credit card use, expense reimbursements, payroll, and inventory are crucial in protecting the company against a rogue employee who uses their position to misappropriate company assets.

When employers create enriching work environments where their employees feel supported and can convey internal or external stressors, they're boosting employee morale and minimizing the risk of fraudulent behavior. Unfortunately, you can't control all employee behavior no matter how hard you try, so it is crucial to also invest in adequate anti-fraud controls and trainings to protect your company even further. Very often, the cost of anti-fraud activities is far less than the cost of an actual fraud. Unfortunately, many companies don't discover this fact until it's too late.

About the Author(s)

Timothy Ball

Executive Vice President, The Bonadio Group

Tim Ball is an Executive Vice President and the leader of the Bonadio Strategic Advisory Team (BSA), the Bonadio Fraud and Forensic Accounting and Litigation Support Division (BFF), and the Cannabis Industry Practice at The Bonadio Group.

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