Audit accounting books and employee transaction records by CFOs helps detect internal fraud and employee theft. Rolf Neuweiler, A2ZCFO (image: audit accounting)

Fraud Detection and Prevention – Part 2 of 2

In July 2019,  in Part 1, we discussed about detection of internal fraud and employee theft in a company. In Part 2  here we are discussing about ways for fraud prevention. Internal fraud and employee theft in a workplace can be catastrophic to any company, it can be life threatening to a small business with limited resources.

The top down approach

If the foundation is shaky, the entire organizational structure can not be expected to have solid integrity. It is by no means to assume that all employers are squeaky clean, free from greed themselves. If employees see their employers stealing from the company or others, “monkey see monkey do.” 

The “tone at the top” — includes management’s core values, beliefs, integrity and execution thereof, set the tone of the organization and influence the workplace and all the people within the organization. Enron is a good example, as we discuss in our article “The Seven Signs of Ethical Collapse: How to Spot Moral Meltdowns in Organizations”, published Nov. 1st, 2019.  

Employers and management need to evaluate the effectiveness of the following periodically:

  • Has fraud prevention been incorporated into management’s performance evaluation?
  • What are the processes and procedures for fraud prevention and risk management for employers and management?
  • Where and who do employees report if fraud or theft occur?

The bottom up approach 

Some employees feel “justified” or “compensated” with theft and fraud when they regard themselves as not treated fairly by the organization, and/or they feel that they do not have any level of control and input about how an organization is run, in addition to financial incentives. Collecting the following information on a regular basis can help:

  • Do employees regard their management as having honesty and integrity?
  • What do employees anonymously say about company’s moral and morale?
  • Do employees feel that they are treated fairly and with respect by the employers?
  • Does everyone in the organization know the procedures for reporting theft and fraud?

Focus on prevention and deterrence rather than detection and correction

The most cost-effective way to limit fraud-related losses is to prevent or deter fraud from occurring. Realistically fraud can never be completely eliminated.  An ounce of prevention is worth a lot more than a pound of cure. Here are some ways of proactively prevent fraud:

  • A strong internal anti-fraud control system can deter fraud and reduce cost.
  • Create a positive work environment and communicate clearly a fraud-deterring culture of “you will get caught.”
  • Make your policies public and as part of the hiring and evaluation process.
  • Treat employees with respect.
  • Focus on positive messaging about what a company’s brand stands for.
  • Educate employees about preventing fraud, waste and abuse as a part of orientation and annual training programs.
  • Requiring everyone to sign an annual conflict of interest disclosure statement.
  • Provide everyone with an employee manual annually and required to sign a statement of acknowledgment and understanding.
  • direct oversight by management or use CFOs and auditors to conduct analytical review using audit techniques such as data mining. 
  • Audit regularly, irregularly, surprisingly. Rotate jobs when possible, and make taking vacations mandatory, to facilitate auditing by consulting CFOs while employees and staff are on vacation.
  • Create a system for all levels in an organization to regularly align tasks with advancement of an organizational brand’s core value at the end of each day or week.
  • Background checks for all new hires, and ask for references, friends.
  • Implement internal controls, authorization controls.   
  • Separation of duties and access controls for authorization, recording, and custody of assets, especially with banking access.  
  • Implement an anonymous reporting system and follow through with reward.  
  • Secure and monitor supplies.
  • Investigate every incident.
  • Conduct annual fraud checkup and update an organization’s fraud prevention program. 

About a2zCFO:

We help with any aspect of financial management from A to Z. By providing trusted financial advice, I create financial and goal clarity, resulting in increases in cash, profitability and sales all the while preparing the business strategically for a successful exit when the time is right.

  • Works at client’s location and directly with client’s staff;
  • Affordable and flexibility in hours – 4 hours a month to short term full time assignment;  
  • Excels at messy and difficult clean up situations;
  • Meaningful financial reporting for management, bankers, and CPA’s.  Tax returns completed by 4/15;
  • Cradle to grave services – from bootstrapped startups to exit transition service experience.

Please call me (925) 216-5058 or email:

A2Z CFO, we keep your ship on course.

Share on LinkedIn

Leave a Reply

Your email address will not be published. Required fields are marked *