The Top 4 Myths About Employee Fraud & the Secret to Effective Fraud Prevention

It’s so hard to imagine employees might actually steal from their employers!  Why would they DO that?  And yet, it DOES happen.  Knowledge is power here, and knowing these top four myths about fraud and what you can do to prevent employee fraud is all the more powerful.  

Myth #1: I Trust My Employees; They Are Honest; They Would Never Commit Fraud or Steal

The Association of Certified Fraud Examiners (ACFE) 2018 Report to the Nation’s 2018 Global Study on Occupational Fraud and Abuse reported that organizations lose about 5% of their profits to internal theft by employees. And often it’s the most trusted employees who do the most damage.  As the adage goes, ‘Trust but Verify’. 

Myth #2: Background Checks Protect Me from Fraud

According to an ACFE’s 2012 Report to the Nations, most business fraudsters are first-time offenders with clean employment histories. About 87% of them had never been charged or convicted of a fraud-related offense because the employer chose not to prosecute fearing bad publicity.  

Myth #3: Our Audit Will Catch Any Fraudulent Activity

Unlikely.  Audits are not generally designed to catch fraud.  The ACFE classifies external audits as a passive detection method due to the fact that a financial statement audit may or may not involve proactive efforts to specifically identify fraud, depending on the circumstances. Per the ACFE, the average fraud detected by an audit was ongoing for 23 months and showed an average loss of $250,000.

Myth #4: We Have Internal Controls That Protect Us From Fraud

Excellent – maybe.  When were they written?  When was the last time they were tested? While internal controls do make it harder for individual employees to commit fraud, relying on them without testing or reviewing their effectiveness regularly can be like having no controls at all. 

The key to preventing employee fraud is to minimize opportunity for employees by:

1. Implementing internal controls, 
2. Setting policies and ethics from the top down, 
3. and considering having a thorough review of your business’s exposure to employee fraud with a fraud risk assessment.  

This assessment will map out your most vulnerable areas so you can then build a program to mitigate the risk.

Do you have fraud prevention included in your annual strategic planning? It’s easy to overlook – and can torpedo your company if not considered.

Let’s make sure your company is protected. Contact me today to learn more.