Corporate Fraud: How to Identify, Address and Prevent

Fraud is a very real problem in today’s corporate environment. We tend to hear about it only when it impacts the end user — when customer accounts are hacked, for example, or valuable personal data is stolen. But internal fraud can be crippling to a business. Some estimates suggest it costs large corporations in the U.S. between $181 and $364 billion every year. And, fraud can take a variety of forms, from asset misappropriation to falsified financial statements.

The good news? Companies aren’t powerless to stop it. As the types of fraud and the technology behind them continues to evolve, so do the strategies to identify and prevent them moving forward.

Corporate fraud, in all its forms

The most common type of internal fraud is asset misappropriation, which includes theft of inventory, money, business opportunities and anything else of value. This type of fraud ranges in magnitude from an employee skimming a few dollars from petty cash to theft of expensive assets or intellectual property.

Corruption is another type of fraud and it’s the stuff Hollywood movies often dramatize. This type of fraud includes bribery and kickbacks, with vendors and / or employees colluding to secure an inappropriate financial gain.

Then there’s financial statement fraud. This type of fraud involves an employee manipulating financial reports to create an inappropriate benefit for themselves or another interested party. This type of fraud is especially damaging as it can erode public confidence in a firm’s financial statements and management. Upon discovery, financial statement fraud is often met with government fines and other penalties.

Strategies to prevent fraud before it happens

Of course, the best-case scenario when it comes to fraud is stopping it before it starts. Preventative policies are useful deterrents that can help minimize your fraud exposure.

Corporate policies can be designed to ensure any one employee doesn’t hold too much access to critical company data or processes. This is commonly referred to as “separation of duties”. For example, separating the person who prints checks from the person who is authorized to sign them can help to ensure that no single person has the power to create and authorize a fraudulent check.

In addition to robust internal policies and procedures, corporations can institute awareness programs that keep fraud prevention fresh on all employees’ minds. These programs let potential fraudsters know that everyone is on the lookout for fraud, which can be a very effective deterrent.

Identifying fraud, as it happens

Too often, fraud is uncovered as a result of an internal tip and subsequent investigation — someone sees something, says something and then the company works to right the wrong. The problem with this reactive approach is these fraud investigations rarely result in the recovery of all the losses associated with them. A company is far better off implementing policies and procedures that are designed to identify and prevent fraud before it happens. But sometimes fraud happens despite your best efforts, and there are several things a company can do to help identify fraud.

First off, your team members are your eyes and ears throughout your company. You must focus on creating an environment where employees feel comfortable reporting things they see as inappropriate.

Additionally, corporations can create alerts or red flags in their internal systems to send notice to the proper stakeholders when aberrations in financial data appear. Another way to help ensure fraud is identified in a timely manner is to institute a robust internal audit program. Public companies are required to perform a certain level of internal audit, but not all private companies make this investment. An internal audit team can be an invaluable resource when attempting to identify internal fraud.

As a further layer of security, businesses can engage external audit firms or consultants to conduct unannounced fraud-detection engagements, using the element of surprise to catch any wrongdoers off guard.

Additionally, implementing these types of strategies helps to create a corporate culture where fraud prevention is seen as a priority. So, it stands to reason that putting the time and investment into anti-fraud policies up front can pay big dividends over the long-term.

Deposit Management can help with fraud prevention

Seeking the help of a reputable 3rd party to manage your organizations corporate deposits can virtually eliminate the opportunity for fraud in that area. This is often a huge help for mid-sized organizations who don’t have the manpower to institute separation of duties within their treasury department.

Deposit Management services are designed to reduce your internal workload as well as reduce the opportunity for your employees to defraud you. At ADM, we built our proprietary technology to help businesses secure FDIC / NCUA insurance for all their corporate cash, while earning a competitive return. In time, our clients realized an ancillary benefit to our service: Extra cash in a business creates an opportunity for internal theft. When you entrust that money to a company like ADM, you eliminate the potential for fraud — while keeping your money safe, liquid and growing at a highly competitive rate.

Outsourcing Vendor Payments as means to reduce fraud risk

There are other systems and external services your business can implement on the path to fraud prevention. For example, the accounts payable process can create significant opportunities for fraud, so consider using a reliable third-party to manage those payments. At ADM, we created our vendor payments service to streamline the often-complex process of paying vendors, accurately and on time. That eliminates the opportunity for any internal fraud or collusion in accounts payable, stopping temptation before it starts.

No business wants to be a victim of fraud. The key to avoiding losses and legal battles lies in a proactive approach, with a plan to implement the right policies and systems to keep wrongdoers at bay. Want to discuss how ADM can help as you work to protect your business? Explore our vendor payment and deposit management services, or contact one of our friendly associates today.


*American Deposit Management Co. is not an FDIC/NCUA-insured institution. FDIC/NCUA deposit coverage only protects against the failure of an FDIC/NCUA-insured depository institution.

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