Good Practice Principles for deterring and detecting Fraud

100% fraud prevention is not practicable as the additional internal controls required would stifle an organization’s ability to function. It would also be highly costly and may be seen as outweighing the benefits which might be gained by the reduction of potential fraud loss.

Fraud deterrence aims to improve organisational procedure to reduce or eliminate the underlying causes of fraud, and involves both short term (systems) and long term (cultural) initiatives, for example:

Systems

• Writing a fraud strategy statement
  Guidelines adopted at a top level within an organisation should provide guiding principles on how to distinguish between what is accepted custom and practice and what is not acceptable. The guidelines could answer such practical questions as ‘when does pilfering become fraud?’ and ‘when does hospitality become corruption?’
  The establishment of a register of interests can also help identify areas or within an organisation where the potential for fraud may lie.

• Engaging/establishing an audit committee
  One of the roles of an audit committee is to help design fraud prevention measures, investigate allegations of malpractice, and suggest action when they are uncovered.

• Utilizing Information Technology
  Fraud is sometimes perpetrated because one department does not know what the other is doing. Integrated and relational databases enable information to be cross referenced, both internally and with other organisations, to enable fraud to be more easily spotted.

Culture

Systems can only be effective in an organisation where the cultural environment is such that fraud prevention and detection measures are supported and communicated.

• Leadership
  Messages about fraud and corruption need to come from the top and be reinforced with action. There may be cynicism among employees if previous concerns have been brushed under the carpet.

• Communication
  If fraud has occurred within your organisation it is important that relevant information is fed back to staff. Communication should occur to allow concerns to be addressed. It is also important that the offence is not overly trivialized or dramatized and that updates and conclusions are given to employees on cases that are being investigated.
  Explain to your teams what fraud is and the effect that it will have on their jobs and the services provided to internal and external customers. Ensure they are aware of the possible signs that indicate fraud may be occurring in the organisation. A range of communication channels can be used such as formal policy statements, presentations and internal newsletters.

• Whistle blowing
  Employees need to be aware of the appropriate reporting routes if they identify an issue or problem.
  This can be through their line manager or a nominated member of staff who is perceived as being independent. Employees should not attempt to investigate the matters of fraud themselves.
  The Public Interest Disclosure Act 1999 offers a framework for the protection of employees who whistle-blow. Provided a disclosure is believed to be substantially true and made in good faith, the act provides the employee with protection from sanctions.