Workplace fraud digs deeply into the profits of organizations all over the world. The ACFE estimates that the average US company loses five per cent of revenues to internal fraud and the RCMP’s Commercial Crime Branch estimates that Canadian companies lose between $10 and $30 billion annually.

While workplace fraud is prevalent across all sizes and types of organizations, it’s the smaller companies that suffer the most. Many smaller organizations simply don’t have the resources to dedicate to a complex anti-fraud program. And smaller organizations often operate on smaller margins. Five per cent of revenue can mean the difference between making a profit and going bankrupt.

Just because a company can’t afford an elaborate anti-fraud program, however, doesn’t mean it has to live with the fact of fraud. There are many simple and inexpensive things a company can do to prevent fraud.

It Starts at the Top

Forensic accountant and fraud investigator Tracy Coenen stresses the importance of developing a culture of integrity. It should be obvious to employees what’s acceptable and what isn’t, and management’s actions should reflect this culture. “…it’s not only leading by example but also having that very well designed line between what’s ok and not ok, that we never even want to get close to because we don’t want our employees substituting their judgment for ours,” she says.

An organization can develop a culture of integrity through the effective use of a values statement, says Christopher Bauer, a psychologist, trainer, speaker, and consultant on ethics.

You’ll know you have a good values statement “if you notice that persistently decisions at all levels in all departments are measured to some degree by whether or not they are aligned with the values that you say you have,” says Bauer. The values statement should be part of the fabric of the organization.

Bauer also suggests talking about the values statement during job interviews so that any new employee entering the organization has an idea of the company’s values and knows what kind of behavior is consistent with the company’s culture.

Anonymous Reporting

Since more than 40 per cent of frauds are reported by tips or anonymous information, every company should have  anonymous reporting mechanisms in place. These can consist of hotlines, anonymous web forms, an email address, etc. Employees need to be educated about the existence of these mechanisms for reporting and assured that reporting will not result in retaliation.

“Starting from the time of recruiting, through hiring and orientation as well as for existing employees, ensure everyone understands the means available to them to tell you anonymously if fraud is occurring,” says Stephen Pedneault, author of Anatomy of a Fraud Investigation, and founder of Forensic Accounting Services, LLC.

Background Checks

Coenen also advocates keeping fraudsters out of your organization from the start, by conducting thorough background checks.

“The more sensitive the job or the higher the position, the more checking we want to do,” advises Coenen. “The most dangerous types of fraud for a company’s bottom line are those committed by upper management because they are typically of a size that can put a company into bankruptcy or could lead to the loss of a very large customer.” The degree of background investigation to be carried out on a potential employee, therefore, should reflect the level of position in the company and the potential for damage.