About 10 years ago I was asked to write an article about fraud and ways to protect your organization. The five tips I encouraged were as follows:
– Provide anti-fraud training to employees.
– Create a zero tolerance anti-fraud policy for your organization.
– Establish an anonymous tip hotline or submission process.
– Ensure management conducts thorough and consistent reviews of financial data.
– Establish internal controls and reassess their effectiveness periodically.
According to the Association of Certified Fraud Examiners 2024 Report of to the Nations:
- Fraud accounted for over $3.1 billion in losses during the year, with an estimated 5% of revenue lost to fraud each year.
- Average loss per case was $1.7 million with a median loss of $145,000 per case.
- Manufacturing and Construction companies are in the top 5 industries who see the most losses from fraud.
The tips I provided still hold true today with some additions:
Provide anti-fraud training to employees.
Include training that covers how to recognize phishing attempts via email and text messaging. Make sure employees know how to report suspicious activities. The ACFE attributes 43% of detections to tips (more than 3x any other method of detection).
Create a zero tolerance anti-fraud policy for your organization and include in your handbook.
Establish an anonymous tip hotline or submission process.
The ACFE reports that 40% of tips are submitted through web-based systems, 37% through email and 30% by phone.
Ensure management conducts thorough and consistent reviews of financial data.
As a financial professional this is a common area I identify for improvement within organizations. Leaders tend to be pulled in several directions simultaneously and if things are good (aka cash is flowing and the business is growing) financial review seems to get skimmed over and pushed to the bottom of the pile of to-dos Ultimately this creates an environment with few guard rails and little insight into the health of the organization. To quote one of my favorite management books Traction by Gino Wickman:
“I’ve got bad news, and I’ve got good news. The bad news is that the gauges aren’t working. We are hopelessly lost, I have no idea how fast we’re flying or in what direction, and I don’t know how much fuel we have left. The good news is that we’re making great time!”
Establish internal controls and reassess their effectiveness periodically.
In conjunction with a thorough/consistent review of financial data by management, internal controls are your front line of defense. Operations, accounting, sales, customer service and executive/upper management account for more than half of all fraud cases (ACFE-2024 ROTN). Internal controls are not just for accounting they should be implemented across all departments and divisions within an organization. Segregation of duties and oversight/review processes are two relatively easy controls to implement that can offer significant returns in terms of fraud protection. Segregation of duties limits the ability of one person in the organization from having complete control over the process.
How can Bringman Consulting Help?
As a financial leader for the past 20 years, I have designed and implemented numerous internal control plans and financial reporting packages across all sizes of organizations. Utilizing these years of experience, I tailor my service to your individual organization and structure. Keeping in mind the need for transparency in reporting and the fundamentals of limiting risk and exposure while safeguarding the organization’s assets. You know what they say—an ounce of prevention is worth a pound of cure. Contact us today to learn more.