Justin Snell, Director, Dispute Resolution & Forensics, Bennett Thrasher 

Bad Things Happen

As the CEO it’s easy to think that everyone knows, understands and believes in the vision you have for the organization. You like to think that everyone is working to accomplish the organization’s goals. After all, you spent countless sacrificial hours developing a vision and strategy for your organization. You’ve read and studied leadership techniques and how to get the most out of your people, and how to motivate, incentivize and reward them. And so it’s all the more perplexing when you learn that someone in your organization has committed fraud.

Unfortunately fraud is more common than you might think. And it’s not reserved for large, global, complex, public companies like AIG, Lehman Brothers, or Satyam. In fact, according to the Association of Certified Fraud Examiners, private companies and not-for-profit organizations combined for nearly half (49.7%) of the reported incidents, and organizations that had fewer than 100 employees experienced the highest incident rate.[1] Fraud is also costly. The same survey reports that a typical organization loses 5% of its revenue to fraud each year. And that’s just the average; more than one-fifth of frauds in the survey caused at least $1 million in losses.

The point is, don’t assume it’s not a problem. As much as we want to believe that we hire good people who believe in our vision and goals as much as we do, the truth is, bad things happen. So what can you do about it?

Lower Your Fraud Risk Profile

Make preventing and detecting fraud a priority. It’s up to you to set the tone for the entire organization. Surveys have consistently shown that your attitude and approach to ethics and integrity as the leader of the organization is a determining factor in the incident rate of fraud. It’s important that you communicate your expectations of ethical behavior, listen when concerns are raised, and model and reinforce the behavior you expect out of employees. Find ways to reward ethical behavior and establish and enforce consequences for unethical behavior.

Know Your Risks

As you experience growth, you might enter into new markets, take on new employees, implement new systems, or become subject to new regulation. When you do, your business environment changes and with it, your risk profile, and specifically, your fraud risk profile. It’s important to know and understand the risks you face.

Imagine you were tasked with defending the country but you had no idea if the enemy was foreign or domestic, the size of the opposing army, or what weapons they possessed, and no idea of when or where they might attack. If you haven’t done a fraud risk assessment, you’re doing just that. Knowing what fraud schemes might be used against your organization is the first and most important step to preventing and detecting fraud, waste, and abuse. After identifying and assessing your fraud risks, the next step is to mitigate those risks by designing and implementing custom anti-fraud programs and controls based on your risks.

Know When It Happens

The most effective anti-fraud control is a hotline. In the ACFE’s survey, more than half the instances of fraud were identified and reported by an employee. An effectively designed hotline is the mechanism by which employees can report concerns and help reduce losses and, in turn, bolster the bottom line.

Know What to Do

In the unfortunate event that fraud does occur within your organization, you will ask a myriad of questions. How did this happen? Who is at fault? Can I recover any of the loss? Do I involve the authorities or regulators? Will I be sued? Do I have to disclose the fraud? 

Frauds can be complex and create many unforeseen headaches beyond just the loss of money. It is important to know what to do and not feel your way through to an end. In short, have a plan. That plan should include a trusted advisor that knows and understands how to investigate and resolve the issue in a way that can save time and money and prevent further headaches to an already painful situation. Without the right skills and experience, trying to handle the issue on your own or in-house can be both disastrous and costly. 

Develop a relationship with someone that has the knowledge and experience to navigate these difficult circumstances before it happens. 

Do you suspect you have incurred a loss due to fraud, waste, or abuse? Do you know your risks? Do you know what to do? 

The suggestions here are only part of a comprehensive antifraud program. For more information or assistance with designing, implementing or evaluating antifraud programs, or for help responding to fraud, waste or abuse, please contact Justin Snell, Director, Dispute Resolution & Forensics, at Bennett Thrasher at 770-396-2200.


[1] Association of Certified Fraud Examiners “Report to the Nations on Occupational Fraud and Abuse, 2012 Global Fraud Study.


Alana Drusset's picture
I think that for CEOs and managers to know what kinds of fraud can happen to their company and how to prevent that fraud is a great step in the direction of having peace of mind about the company's well being and trusting their employees. It's also great for employees to have an anonymous way to report suspected fraud, so that they can protect the company without jeopardizing their own job or social standing.
Will James's picture
I can't help but think that a lot of fraud could be prevented if genuinely honest and ethical people were hired, rather than people who would do the job well but might not be the most trustworthy individuals. Companies need to be more careful to hire people they can rely on to show integrity and honor in their job.
StevenT's picture
Scams are a part of human civilization. As soon as money was invented, someone probably created a way to get it dishonestly. Presently, one of the most susceptible groups is the elderly, who fall victim frequently to fraud artists. How often have you needed additional information on where to find a payday loan, and turned to a web site search on MatchFinancial.See more at: http://www.matchfinancial.com/

Follow The Blog

   Email * 
Subscribe to Syndicate

Blog Categories

Blog Authors