When different employees handle different parts of a transaction, it can be difficult to detect fraud. If a dishonest manager orchestrates a fraud scheme by instructing several employees to perform routine tasks that appear legitimate, employees may not realize the overall process may be fraudulent, since they are only involved in a small portion. This is known as task fragmentation and it enables fraudsters to evade scrutiny, conduct schemes for longer durations, and cause greater losses before they’re discovered. Your business can fortunately thwart this threat by emphasizing transparency and training employees.

Questions Are Critical

The first step in foiling task fragmentation schemes is to empower employees to ask questions. For example, let’s say a senior manager asks a new employee to locate the business’ bank transactions exceeding a certain amount and to transfer the proceeds to a reserve account. The employee should be comfortable asking why the transactions are being made, especially if the request is unusual or inconsistent with established procedures. The supervisor should be prepared for such questions with a clear business purpose and documented steps that employees can reference for any subsequent inquiries.

Similarly, if the employee instructed to transfer the funds learns that another person will perform the next phase of the transaction, the employee should feel justified in asking why. Encourage employees to ask why the activity is completed in multiple phases, who’s responsible for each step, and who ultimately “owns” the transaction.

Educating Employees

Train your employees about the risks of task fragmentation and provide detailed examples. For instance, you might share the following fictional accounting department scheme:

Employee A is instructed by the CFO to set up a new vendor in the accounting system. The CFO claims the vendor is a legitimate new supplier.

Employee B receives an invoice from that vendor and is told by the CFO to enter it into the system.

Manager C is asked by the CFO to approve the invoice because it falls below the business’ approval threshold.

Employee D processes the payment run.

The above accounts payable process is repeated many times for the “vendor,” and each payment is sent to a bank account controlled by the CFO. Because four different employees perform only a small, seemingly legitimate task in each transaction’s process, they don’t recognize that the vendor and invoices are fraudulent.

Other fraudulent transactions might include tightly sequenced and controlled tasks, repeated handoffs without clear justification, and subthreshold transactions that, when added up, exceed transaction limits. Establishing end-to-end ownership for high-risk processes can help close visibility gaps.

Executive Risk

In addition to helping workers see how fragmented task schemes work, real-world examples reinforce the idea that even executives can commit fraud. And schemes committed by high-level employees are generally much more costly — the median loss per incident is $475,000 for owners and executives, compared to $125,000 for managers and $50,000 for nonmanager employees, according to the Association of Certified Fraud Examiners.

Segregation of duties (asking multiple employees to perform different parts of a sensitive task) is often an effective antifraud control. However, these processes should be well documented and transparent to all involved. To help ensure segregation of duties isn’t, in fact, a cover for task fragmentation fraud tactics, business owners should periodically audit transactions from start to finish for legitimacy.

Allow Employees To Say No

Another effective way to prevent task fragmentation schemes is to grant employees the right to decline tasks they aren’t comfortable with. This may seem antithetical to your culture, but it’s important for your business’ financial health that employees who speak up don’t fear retribution. Also make it easy for them to report suspicions anonymously via a fraud hotline or web portal.

Contact us for help with antifraud training. We can also assist you in implementing internal controls that deter task fragmentation schemes.