12 Most Effective Strategies for Preventing Workplace Fraud

12 Most Effective Strategies for Preventing Workplace Fraud

The average company loses five per cent of its revenue to fraud each year, according to the Association of Certified Fraud Examiners (ACFE). For companies that operate with small margins, losing five per cent of revenue can mean the difference between success and bankruptcy, so it makes sense to invest significant time and effort in fraud prevention.

Three elements are present in every incidence of workplace fraud: opportunity, motivation and rationalization. This is known as the fraud triangle, a theory developed by Dr. Donald Cressey in the 1950s. The key to preventing internal fraud is to address each of these elements in your anti-fraud program.

Here are 12 strategies to get you on the right track.

1. Segregated duties

No single employee should be responsible for both the approval and reconciliation of any function. Segregation of duties prevents fraud because it requires more than one person to perpetuate a theft. The following six duties should be separated:

  • Requisitioning and approving the purchase of goods or services
  • Approving the purchase of goods or services and reconciling monthly financial reports
  • Approving the purchase of goods or services and having custody of checks
  • Maintaining and reconciling accounting records and having custody of checks
  • Opening the mail/preparing a listing of checks received and making the deposit
  • Opening the mail/preparing a listing of checks received and maintaining the accounts receivable accounting records

2. Forced vacations

An employee who never takes vacation may look like a diligent, hard-working overachiever, but sometimes that’s not the case at all. Employees who have a fraud scheme under way often avoid being away from work or having another person perform their function for fear of detection.

3. Tone from the top

A strong ethical tone from the top of the organization makes it clear that fraud will not be tolerated. This means a company’s top executives must set an example of strong ethics and transparency. There can be no double-standard when it comes to ethical behavior from the management and board of directors.

4. Employee training

Continuous training and reinforcement of the anti-fraud policy should include examples of behavior that is and isn’t acceptable. Training should stress the importance of employees speaking up when they see something that looks wrong.

5. Management training

Managers should be trained in spotting red flags of fraud and what to do when they suspect fraud. Training in basic fraud schemes, what to look for and how to prevent them should be combined with a strong ethics training program.

6. Anonymous reporting

The ACFE’s most recent Global Fraud Study reinforced the fact that employee tips are still the best source of fraud detection. Implement an ethics hotline that allows employees, managers and customers to report anonymously when they see something wrong. Most importantly, follow up on all tips so that whistleblowers know that their concerns will be addressed.

7. Random external audits

Even though they have proven to have little value in uncovering fraud, the mere idea that random audits will occur may keep some employees from taking the risk. And if they do happen to uncover fraud, that’s just one more reason to keep them.

8. Cultivate relationships

Loyal employees are less likely to steal from their employers. And how do you encourage loyalty in employees? Treat them well. Pay them well. Talk to them and listen to them. Be flexible in working conditions when the circumstances allow. Respect their personal time and don’t put unreasonable demands on them.

9. Watch for red flags

Some of the red flags of fraud include:

  • An employee who seems to be living beyond his or her means
  • A sudden change in attitude and/or behavior
  • Unexplained profits and losses in the books
  • Evidence of relationships between employees and customers or suppliers
  • An employee who never takes vacation
  • An employee who works a lot of overtime
  • Evidence of financial hardship

10. Open communication

Cultivate an open-door policy so that any employee at any level feels comfortable talking to even the more senior executive in the company. Ensure communication goes both ways, with executives sharing information about the company’s performance and growth plans.

11. No-retaliation policy

Communicate a strict no-retaliation policy in company literature and verbally. Tie this in with information about the company’s ethics hotline and open-door communication policy. Follow up on all complaints with a thorough and fair investigation, making it clear that there will be no retaliation. Follow up with whistleblowers in the months, week and years after a complaint to confirm that there was no retaliation. Word will get out that employees are safe to blow the whistle without fear of retaliation.

12. Zero-tolerance culture

Develop a zero-tolerance culture for fraud and corruption. Ensure all the company collateral sends the same message with company symbols, trademarks and slogans that encourage ethical behavior. Recent research suggest that symbols depicting money, competition, winning at all costs, crushing the enemy, etc., may actually encourage unethical behavior, so it’s not a bad idea to keep these images out of your company’s marketing and communications strategy.

But a 12 step-strategy is only as effective as its implementation and this means that getting buy-in from every level of the company is necessary to ensure your anti-fraud program works.

Featured image courtesy of Surreal Sways licensed via Creative Commons.

Dawn Lomer


Dawn Lomer is the corporate journalist for i-Sight Software. She writes about workplace investigations, ethics and compliance, data security and e-discovery for the company blog and other publications. With 20-plus years of experience as a writer and editor for print magazines and newspapers at home and abroad, she now appreciates the immediacy, flexibility and efficiency of online journalism. When she isn’t writing, Dawn enjoys running, cycling, swimming and skiing.

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Great blog Dawn, there are a lot of useful tips in this article. Thanks for sharing.


Wow, Dawn...you are very knowledgeable about a tough subject. I appreciated the Red Flags you outlined in #9 as well as a good description of segregated duties. And I absolutely agree with #12.


@davidkwaltz Thanks for the retweet.


@carolharnett Thanks for sharing. My new tagline: When you think of fraud, think of @jdruotolo :)