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Employee fraud: protect your business from internal threats

Spotting fraudulent activity requires company-wide processes and transparency at all levels. Here are some of the top prevention and detection strategies to help protect your business.

As the schemes and methods fraudsters use to commit occupational fraud evolve,

organisations need to ensure they have the right systems and tools in place to identify and stop fraudulent conduct.

There are many ways businesses can reduce opportunities for fraudsters – primarily by creating a transparent environment that actively discourages and prevents fraud and promoting the message that such prevention benefits everyone.

Create an anti-fraud company culture

“Too many organisations don’t take employee fraud seriously because they want to believe all their staff can be trusted,” says John Allcock, Fraud Awareness Analyst for NatWest. 

“Creating a very visible anti-fraud culture – including training staff to understand how and why individuals might steal, and educating them as to the impacts of insider fraud, helps get the message across. It also spells out clearly what actions the company will take if it uncovers dishonesty.”

Owners and managers need to emphasise that fraudsters in the workplace will put their colleagues’ jobs at risk, reinforcing the fact that it’s everyone’s responsibility to report suspected wrongdoing. 

According to the Association of Certified Fraud Examiners, maintaining a hotline or reporting mechanism increases the chances of earlier fraud detection and reduces losses. 

Its 2022 Occupational Fraud Report found that:

  • Fraud losses were two times higher at organisations without hotlines

  • Organisations with hotlines detect frauds more quickly

  • Fraud awareness training encourages tip-offs through reporting mechanisms

Five anti-fraud controls you should be aware of

There are numerous internal controls designed to prevent, detect, or mitigate any attempted wrongdoing. These include:

  1. Regular rotation of duties: leaving one person with permanent unilateral responsibility for financials makes it easier for a dishonest employee to hide transactions and cover their tracks. 

  2. Surprise audits: an effective tool not just in detecting employee fraud but also in preventing it. Make staff aware that such checks can be carried out at any time – and then make sure they are.

  3. Management review: an effective and more cost-effective control for smaller businesses, this includes obtaining and reviewing bank statements, obtaining and verifying electronic data, and keeping a dashboard of key metrics.

  4. Code of conduct: establish a workplace culture that values ethics and integrity. This shows employees that fraud isn’t an acceptable route to personal or professional success. Improve inter-departmental working and ensure everyone is accountable. 

  5. Mandatory vacation policies: job rotation and enforcing breaks and holidays can be an effective measure to prevent fraud and reduce loss. 

How technology can prevent or detect fraud

Machine learning – artificial intelligence (AI) – can track what is normal business and what is abnormal. An AI system focuses on human behaviour, which is not single-dimensional, or measurable by numbers. 

AI picks up patterns – not just if an employee tries to make an unusual payment, or suddenly claims more expenses, but if they begin emailing someone more often, or the tone of such communications changes. 

You suspect fraud – what happens now?
  • Have a fraud response team that is trained in how and why employees commit fraud

  • Investigate with tact and discretion and, crucially, within the law

  • Take steps to prevent similar frauds from happening again in the future and learn from the experience

This material is published by NatWest Group plc (“NatWest Group”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by NatWest Group and NatWest Group makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the NatWest Group Economics Department, as of this date and are subject to change without notice.

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