When employees commit fraud, it can take months, even years, for their employers to discover the theft. But proactive fraud detection makes it possible for businesses to detect fraud schemes earlier; long before they generate significant losses.

Step by step

Proactive fraud detection starts with identifying areas where you lack key controls or where controls exist but employees frequently ignore or override them. For example, employees may fail to properly secure blank check stock or forget to deposit cash at the bank on a daily basis. Even if these employees have no ill intention, such neglect opens the door for those bent on committing fraud. A forensic accountant can be particularly useful when you are reviewing controls and their execution (or lack thereof).

Next, envision the types of fraud employees in your organization might commit. It helps to follow the money. As money moves around your company, how might employees divert it for their own use? Could they use corporate credit cards to pay for personal expenses or issue business checks payable to themselves?

Then, think about how illicit activities might show up in company records. For example, if a retail employee steals cash from the register, their no-sale activity is likely to increase. Or, an employee committing expense fraud might submit frequent reimbursement requests in amounts just below the threshold that would require documentation.

Finally, develop reporting that analyzes your company’s data for signs associated with each likely fraud scheme. If you are a retailer worried about cash theft by point-of-sale employees, you need weekly baseline measures of void and no-sale activity to compare individual workers against. If an employee’s numbers are higher than the average, you can then investigate further to determine the root cause. You may find fraud, but you also may discover that there’s an innocent explanation for the discrepancy, such as inadequate training.

Be specific

Proactive fraud detection helps companies stop employee theft quickly because it focuses on the fraud schemes that are most likely to occur in particular organizations. Contact us for help isolating your company’s vulnerabilities and establishing effective measures to discover fraud activity.