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How Companies of All Sizes Can Prevent Fraud

fraud . / Credit: Stealing Image via Shutterstock

Fraud is a big problem for small and big companies alike. Companies lose an estimated 5 percent of their annual revenue as a result of fraudulent activities by employees, managers, owners and executives, new research finds. 

Overall, research by the Association of Certified Financial Examiners (ACFE)  found that employees were more likely than their bosses to commit a fraud within a company. Of those that had committed fraud at work, 42 percent were employees and 38 percent were managers. Additionally, 18 percent of fraudsters were business owners and executives. 

"Fraud detection and prevention should be an ongoing initiative and International Fraud Awareness Week offers a great opportunity for businesses to become aware and develop and review policies and controls to fight fraud and safeguard their livelihood from this continually growing problem," said Cynthia Hetherington, founder and president of the Hetherington Group, a consulting firm focusing on intelligence, security and investigations . 

To help businesses protect themselves from fraud, Hetherington offers the following tips for all companies:

  • Offer internal and external audits.
  • Create management reviews and independent audit committees.
  • Offer fraud training for management and employees.
  • Have mandatory vacation and job rotation.
  • Create a hotline/tip line and rewards for whistleblowers.

Small businesses, however, must be extra vigilant about fraud, Hetherington says.

"Small businesses in particular are extremely susceptible to employee fraud as they often lack the anti-fraud controls or policies found in larger organizations," said Hetherington.

Hetherington offers the following tips to small businesses looking to prevent fraud.  

  • Small companies seldom bother with a background check on new employees, potentially inviting hackers, predators and even convicted felons into the organization. Conduct a thorough background check that goes back over the past seven years on all employees before hiring to see if there is a criminal history.
  • With a signed release, check new employees' credit reports for any fiscal irresponsibility.  During an economic crisis, it's OK to have some financial stresses, but you wouldn't want your comptroller to be filing for bankruptcy.
  • Once the employee is being considered for hire, review their social networks for any items damaging to reputation, especially any past animosity against their former employer.
  • Institute an employee policy that outlines expected employee behavior anytime they are representing the company, including any mention on their social networks.

Follow David Mielach on Twitter @D_M89 or BusinessNewsDaily @bndarticles. We're also on Facebook & Google+

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