How do I protect my company from fraudsters?

This assumption prevails in many companies. Additionally, there's a widespread conviction that internal controls and audits are sufficient to unearth any criminal activities by employees. However, cases of fraud[1] are far from rare. According to the 2024 report “Occupational Fraud 2024:  A Report to the  Nations", businesses lose an estimated 5% of their annual turnover to fraud, with a median loss of $145,000 per case.

The ACFE's 2024 report further reveals that fraud cases are most often (43%) uncovered through tip-offs. Half of these tips come from employees and the rest from customers, anonymous whistleblowers, or suppliers, among others. This highlights a significant untapped potential among employees, who often are the first to notice anomalies or irregularities but may lack the awareness of what to look for. 

Key recommendations for employees to recognise fraud

To help employees recognize fraud and aid the company in effectively combating it, consider these points:

1. Regular training

All employees should undergo regular training focused on "combating fraud," particularly to raise awareness, as fraud is not typically on their radar. Training should use language that engages employees and motivates participation. This approach fosters an understanding of fraud and its potential manifestations within their work environment, helping to reduce losses per fraud case and shorten the detection period.

2. Reporting mechanism

It's crucial that employees know how and where to report suspicious activities. An anonymous reporting point can be a powerful tool for reporting fraud without fear of retaliation.

3. Corporate culture

The corporate culture should be characterised by integrity and honesty. Managers must lead by example in ethical behavior and integrity to foster a trustworthy atmosphere.

4. Transparency

Informing employees about the company's measures to prevent and detect fraud is vital. This includes not only preventive measures, but also measures taken after the discovery of fraud (e.g., after the conclusion of an internal investigation). Sharing this information can play a significant role in mitigating risk by enhancing employee awareness, deterring potential fraudsters, and boosting confidence in the company's integrity.

Conclusion

Fraud within a company is not a theoretical thought construct, but a real existing danger. As Stephen King and Peter Straub observed in their novel "The Talisman" (1984): "The trust of the innocent is the liar’s most useful tool."

This statement underscores how fraudsters often exploit the trust of others to achieve their objectives. With this in mind, it is crucial for companies to actively engage their employees in fraud prevention efforts and equip them with the necessary tools to do so. This strategy can minimise financial losses, safeguard reputations, and reinforce trust within the company.

[1] According to Swiss Auditing Standard AS 240, fraud is defined as a deliberate act by one or more persons (from management, those responsible for monitoring, employees or third parties) to obtain an unjustified or unlawful advantage by deception.