Fraud Prevention Program

Fraud is any intentional act committed to secure an unfair or unlawful gain. Fraud is generally defined as an intentionally false representation about a material point, which causes a victim to suffer harm. It is always intentional, intentional by appearance, or intentional by inference from the act.

Fraud as an aspect of corruption normally happens in organizations where the governance structures are weak or have become corrupted themselves. Everyone in the organization from the director to the office technician has a role to play in prevention of fraud. Fraud can be controlled by putting in place financial controls, non-financial systems and management oversight.

Fraud Prevention Program

To prevent frauds company implement the fraud prevention program.Lets take a fictitious company, for eg. ABC Limited for which we wish to implement fraud prevention program.

Fraud prevention begins with the formation of a committee ie. Fraud prevention steering committee which is responsible for implementation of fraud prevention program in a company.The members of top management,CXO’s,Head of HR, Head of Risk & Compliance,Auditors,Legal Representative ,Forensic Accountant and external consultants are all part of this FPSC.They get together and formulate a fraud prevention program.

Training program is the first step of the fraud prevention program.Training involves telling employees about what is fraud,what are the indicators to the fraud,what are the areas in the organization which are vulnerable to fraud.How to report fraud etc.For instance unusual behavior of the employee,or sudden change in lifestyle of a person may be some indicators of fraud.The areas prone to the fraud may be payroll system,billing system etc.The Forensic account along with HR prepare a comprehensive fraud traning program.

How do the employees report fraud?The company has to implement a whistle blower policy & anonymous hotline for fraud reporting.The anonymity of the person who reports suspicious behavior or fraud is maintained.The roll of the management here is that whistle blower policy and anonymous hotline is rolled out successfully.This is initiated by creation of awareness about the hotline first.This is reviewed by the the FPSC every quarter.

Once the fraud or suspicious behavior is reported fraud needs to be investigated and culprit to be caught.The forensic accountant is responsible for conducting an Investigation.Forensic account act on given tipoffs.They investigate and monitor the fraud.They evaluate the evidence and find the culprit.

How do we encourage employees to report fraud?The employees who reports fraud should be rewarded & recognized by the company.This can be done by personal commendation letter or some reward can be given to them.

Fraud prevention program also includes telling employees that who are the contractors and partners associated with the company.For eg. A person working onsite on a foreign company (His parent company is partner to the foreign company).It also defines code of conduct for partners.(which areas they are allowed to access).It also specifies the acceptable limit of gifts that one can receive from partner.

It is always said that prevention is better than cure.The best method to prevent fraud is not let the fraud happen only.This can be done by implementing some controls proactively.For eg. Some proactive controls include security policy(which act as a deterrent  control),or even proper identification and authentication measures, segregation of duties etc.

The last but the most important step is used the experience of the frauds that have occurred to prevent frauds that may occur in future.For this proper  systems should be maintained that can store fraud related information and provide information to managers on demand basis.These results stored can provide feedback to the training program also.