How to Fight Fraud While Doing Nothing

Most will agree that fraud costs businesses a lot of money, but there are many business owners and executives who don’t believe fraud is a real risk to their organization. And for those who may see fraud as a risk, it is likely that they underestimate the potential dollar impact. Why do people ignore or underestimate the risk of fraud?

I have been seeking the answer to this question for years now. If I had the answer, I might become a better fraud fighter. I should probably accept the fact that most will not appreciate the true impact of fraud on their business or organization. With this realization, I have changed my view slightly.

If you can believe it, people are fighting fraud without doing anything. Nearly five in ten frauds were not discovered proactively, but were instead uncovered by the organization doing nothing. If we evaluate the following four discovery methods, maybe we’ll get better at them:

• Confession – Imagine that you are sitting at your desk and your most trusted employee comes into your office. The employee begins to cry. Between heavy sobs, they apologize and describe the scheme they used to steal money from your organization. A little over 1 in 100 cases are discovered through confession.
• Notified by Law Enforcement – There were over 2 in 100 cases that were discovered by law enforcement prior to the organization finding the fraud. Would you be excited to receive a call from a local police officer or a federal agent to discuss a fraud that they discovered a fraud within or involving your organization? I would be pretty nervous if I received this call, and the resulting meetings to resolve the issues would be stressful as well.
• Accident – I’m not certain how to describe this one, but the discovery must fall from the sky and land on someone’s desk. Accidents are not predictable and, in most cases, cannot be explained. Interestingly, there were almost 6 in 100 cases discovered by accident.
• Tip – This is my favorite discovery method because it is the best way to discover fraud. Almost four in ten frauds are discovered by someone providing a tip. There are numerous organizations that do not have a plan for receiving and managing tips, but amazingly, the tips can still find their way to someone who acts on them.

Now, these four ways can help discover fraud, and it takes minimal to no effort to find fraud this way. However, if your organization wants to significantly enhance the discovery of fraud within the organization, invest a small amount of time into developing and evaluating the organization’s process for capturing tips. In next week’s blog, we will evaluate where tips come from and how to catch more of them.

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NOTE:  The frequencies of discovery methods included in this post were summarized from the ACFE’s 2016 Report to the Nations.