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Laws not enough to stop fraud

Does this worry you:

Business losses due to fraud increased 20% in the last 12 months, from $1.4 million to $1.7 million per billion dollars of sales. … 88% of the respondents reported being victims of corporate fraud over the past 12 months.

Those numbers are from a survey from the United States, and business people there sure don’t sound too confident in the system designed to prevent fraud. Does this matter here? Almost certainly. Without strong internal fraud-prevention controls and oversight, a legal framework alone cannot prevent fraud.


Aside from various forms of embezzlement and outright theft, and the growing risk of information theft (think hackers), two other kinds of corporate malfeasance have come to the fore in recent years: fraud in the business model and fraud in the business process. …

The most likely targets by industry are financial services, media, technology, manufacturing, and health care. Small and midsize companies are also more vulnerable. “Many of these organizations typically rely on a small accounting department, especially in today’s economy,” says [fraud consultant Steve] Pedneault. They simply don’t have the resources to catch fraudsters.

So try this:

  1. Start at the top.
  2. Educate employees.
  3. Change the culture ASAP.
  4. Surprise! We’re having an audit.
  5. Check (and double-check) employee backgrounds.
  6. Prepare a data-breach response plan.
  7. Make sure the board of directors plays its role.

No one should be surprised that these are just good, smart internal controls.

Read Laton McCartney in CFO Magazine for details.

Adam Gorley
First Reference Internal Controls, Human Resources and Compliance Editor

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Adam Gorley

Adam Gorley is a copywriter, editor and researcher at First Reference. He contributes regularly to First Reference Talks, Inside Internal Controls and other First Reference publications. He writes about general HR issues, accessibility, privacy, technology in the workplace, accommodation, violence and harassment, internal controls and more. Read more
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