Preventing fraud: from having a proper tone at the top to implementing a strong control environment and training programs for employees

Opinion article by Burcin Atakan, Financial Advisory Partner, and Irina Chiriac, Financial Advisory Deputy Director, Deloitte Romania

Fraudulent activities may happen at any time and, in the current economical context, they might even increase due to the financial pressure the employees and business partners may face and to a poor control environment that may create opportunities for wrongdoings. As such, management teams should seek to increase the awareness level within their organizations, so that each employee can be more vigilant and more prone to report potential unethical behavior.

Identifying fraud in the early stages can be done by observing the red flags in the various areas of the company. For instance, in the procurement function, some red flags might include unjustified increases in prices, a potential non-business close relationship with a vendor, communication with the supplier via one single employee, unjustified loans or advance payments to a supplier, using low profile suppliers or suppliers that are highly dependent on the organization, and, of course, tips from employees regarding potential wrongdoings. Corroborating the red flags with information obtained from interviews, document review or data analytics is crucial for describing the entire landscape of a potential fraudulent scheme.

How can companies prevent fraud?

When talking about fraud prevention, it is very important for companies to understand that they need to have a proper tone at the top. Specifically, the management of the organization should have a clear attitude towards fraud and communicate clear messages to the employees that there is zero tolerance to fraud within the company.

Another effective measure of fraud deterrence is to have a strong control environment, through the implementation of proper policies and procedures and effective controls for preventing errors and potential fraud within the company. It is also important for a company to consider having in place a fraud reaction plan, in case such an event occurs, in order to be able to identify what happened, the size of the fraud and to take further steps to recover the loss. Additionally, this plan will help reinforce the company’s zero tolerance approach to fraud.

Another key element of every antifraud corporate program is the employee training program. Considering that it is better to prevent fraud instead of handling its effects, a robust fraud awareness internal training system can help every organization increase its effectiveness in detecting and preventing fraud.

Considering the past few years’ dynamic working circumstances, consisting of a mix of remote and in-office work, most of the companies can now choose to have a combined educational program, using both eLearning platforms and instructor-led training sessions. Once the employees have completed the antifraud educational programs, the likelihood of the organization to prevent, identify or report any potentially fraudulent activity will be enhanced. Nonetheless, it is important to provide recurring access to learning programs, as a one-off training may prove insufficient. Therefore, a yearly training and awareness seminar is preferable.

In conclusion, fraud may happen at any time and may take many forms in organizations which do not have a strong control environment. And in unhappy situations, when the fraud occurs, organizations should strongly consider seeking the assistance of fraud investigation and prevention experts to guide them within their compliance and risk mitigating endeavors.