Preventing Internal Business Fraud
Episode ID S2E11
November 23, 2021
While businesses don’t want to think they could have issues, the reality is that no company is 100% safe from internal fraud. It is important for companies to be aware of potential threats and take the necessary steps to help protect themselves. This month’s episode of Fraud Wise discusses the indicators to look out for in detecting internal fraud.
Hello, this is CoBank’s Fraud Wise helping you avoid becoming a victim of fraud. I’m Michael Delucia, fraud officer at CoBank, and in this episode, we’ll be talking about the kind of fraud that occurs close to home – internal business fraud. While no one wants to think that they have issues, the reality is no company is a hundred percent safe from an internal fraud problem.
It’s important for companies to be aware of potential threats and take the necessary steps to help protect themselves. First, let’s talk about the things to look out for in your own business as indicators of fraud.
The first thing to look out for is unexplained gaps in the business such as inventory shrinkage, missing documents, duplicate requests, spikes in invoice volumes, or bogus invoices that don’t represent real inventory. These types of issues are strong indicators that someone is attempting to launder money or participate in theft.
Employee behaviors can also point to potential fraud. Employers should look out for drastic changes in an employee’s lifestyle such as excessive gambling, expensive trips, new cars or refusal to take vacations or share duties.
Most companies have internal controls to check out behind the scenes activity for suspicious behavior including employee access to accounts and systems, excessive write offs, and their authorization to make transactions with banks or vendors.
That said, the best way to address internal fraud is through preventive controls and measures.
Some best practices to reduce internal fraud risks include:
- Implementing two-touch approval processes;
- Maintaining an ethics hotline to report suspicious behavior;
- Conducting annual ethics and standards of conduct training;
- Requiring people to take off five consecutive days a year;
- Conducting frequent inventory audits;
- Reviewing expense reimbursement policies;
- Enforcing duty rotation;
- Requiring each employee to have their own password and credentials and do not allow sharing for any reason;
- And prohibiting the sharing of customer credentials.
Whether you’re a small company or a large organization, the best way to address fraud is to prevent it from happening in the first place . Even with the best controls, fraudsters will always try to circumvent the system, so it is important to remain vigilant.
This has been CoBank’s Fraud Wise. Helping you avoid becoming a victim of fraud. For more information about these and other types of fraud, visit cobank.com slash security.