3 Things to Start Doing Immediately to Increase Your Chances of Catching Fraud

In our daily lives, we trade tips with other people all the time. Every so often, I receive a tip from a friend about a new restaurant and we discuss his dining experience. If positive, I might be encouraged to try it out, but if it was a negative experience, I will take heed and stay away. And, just as I receive tips, I also provide them. But tips are only helpful if we choose to use them—which brings me to last week’s blog.

You may remember that tips are the number one way fraud is discovered. It surpasses all other discovery methods, including internal audit, external audit, and even the best internal controls you can implement.

When we think of tips, we usually think of an employee reporting internal fraud—which makes sense because over half of all tips come from employees. However, we can’t forget about the other half, which come from a variety of people like customers, vendors, competitors, or even anonymously. These tips can also come to us in a variety of ways like through a phone call, an email, a letter, or even a fax.

If you haven’t implemented the following procedures, you should do so immediately to increase your chances of capturing tips:

1. Implement and monitor internal reporting channels – Every organization should have internal reporting channels for employees and outside parties to report possible fraud. This topic will be covered in greater detail in future blogs.
2. Basic incoming communications should be received by someone independent of operational and financial responsibilities – Oftentimes, I find in smaller organizations most communications (both mail and calls) are automatically routed to the person who could commit the most harm through fraud (like, for example, any communications about payments go to the person in accounts receivable who posts them). It is fairly easy to implement a policy for clerical staff to answer the calls and open all the mail. Contact information (phone number, email address, or physical address) on purchase orders or customer invoices should be that of a person who is independent of operational and financial responsibilities.
3. Train employees about tips – Any person who could receive a potential tip should be trained, especially the people mentioned above who handle incoming communications. The training should cover how to identify tips, handle them, and route them when received. The training can help you discover fraud and prevent others from committing it because others are watching.

These simple, low-cost procedures are well worth the effort needed to implement them because the longer fraud goes undiscovered, the more costly it is to your organization. As alluded to in the first point above, in next week’s blog I will discuss ways to enhance your organization’s hotline. If you are planning to implement a hotline or you want to evaluate your current one, you will want to stay tuned for these best practices.

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