Preventing Fraud with Internal Controls

Taking an active stance on fraud prevention is not just about trusting your team; it’s about having documented (and tested) systems to protect your business from internal threats. Here’s how you can enhance your internal controls to prevent fraud effectively.

Fraud can severely damage a business, both financially and reputationally. According to the 2022 Association of Certified Fraud Examiners (ACFE) Report to the Nation, 29% of fraud cases occurred due to inadequate internal controls. 

Effective internal controls significantly reduce fraud risks and deserve your attention. 

Two Heads are Safer Than One

One key strategy is to clearly delineate duties. In other words, no single employee should control all aspects of any financial transaction. Here’s how:

1. Separate tasks such as authorizing transactions, recording them, and actually sending money.  This will greatly reduce the risk of fraud and mistakes.
2. Require multiple signatures on any financial transaction to add an oversight layer. It is a means of preventing funds from being distributed without the proper approval.
3. Limit who has access to physical and digital assets. Only authorized personnel should access sensitive areas and information. (Fraud and theft can impact more than just money in the bank.  Think inventory, payroll, tax payments, regulatory filings, BOIR, trademarks and more!)
4. Regularly check the reconciliation of your bank accounts, expense reports, and inventory counts. You want to catch issues at the lowest level. Identifying discrepancies early gives you the ability to insert a corrective action.

Document, Train, Rotate

Dont assume that you can assign each person a task and all will be well. People should actually rotate responsibilities every so often because when one person handles a task too long, it becomes easier for them to conceal fraudulent activities. 

If any one employee is inclined to commit fraud, they would understand where there are gaps in their own role. But rotating assignments will disrupt this continuity, making it harder for fraud to go undetected.

See Something, Say Something 

Maintain clear, written policies and procedures for all financial transactions. And use the written policies to train ALL employees — not just the ones who are directly responsible.  Having a team awareness of the correct financial systems means that you will have a team of detectives and enforcers watching out for mistakes and problems!

Inspect What you Expect Them to Respect

Regularly review both your internal controls and the results.  Continually look for weaknesses and areas for improvement. As you become more confident, you can use data analytics to spot-check, and to watch for unusual transactions and patterns.  New AI tool can quickly pinpoint unusual outliers and discrepancies that might indicate fraudulent activity.

FuseCFO Will Partner With You Against Fraud By implementing our outlined internal controls, you can create a secure environment that deters fraud and protects your organization’s assets. These controls are how you avoid potential risks and ensure your business remains resilient and trustworthy. To continue this conversation, schedule a free business analysis with us.