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2023 Scholarship Winning Entry: Combating Fraud in the Workplace

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Congratulations to Anh Nguyen on her winning entry for the 2023 Haywood Hunt & Associates Inc. Annual Scholarship. This was the 6th year of our scholarship and we’d like to thank everyone who submitted well-researched and well-written essays again this year. Check back soon on the details of our 2024 scholarship!

2023 Scholarship Winning Entry: By Anh Nguyen

Workplace fraud – also referred to as occupational, employee and internal fraud – prevails as a pressing concern for many businesses who risk losing trust amongst employees, reputation within their communities, and copious amounts of money. In 2022, the Canadian Anti-Fraud Centre reported a $531 million loss, a historical increase from $380 million in 2021. As fraud continues to impact Canadians, businesses can enlist methods such as establishing and maintaining trust systems, continuous employee training, and technology tools, financial monitoring, and setting an ethical standard within their organisations to protect from fraudsters. 

Establish and Maintain Trust Systems

They say successful businesses are built on the foundation of trust. Similarly, the same principle applies to preventing fraud in the workplace: corruption is reported as the most common workplace fraud scheme, accounting for 32% of fraud incidents in small businesses and 42% in large businesses (Business Fraud Prevention, n.d.). As most internal thefts are not covered by insurance, it is essential for businesses to mandate practices such as mandatory vacations. Asides from uplifting employee wellbeing, employees being away from the computer or office enables employers to notice financial and data discrepancies. From 2013 to 2018, two former lunch ladies embezzled nearly $500,000 from a highschool and middle school in Connecticut after taking over accounting responsibilities for lunch proceeds (Keng, 2018). Had these lunch ladies been forced to take vacations, a 300% to 500% increase in cash flow would have triggered the alarm for fraud earlier. Moreover, this incident was only caught when a fellow employee accused the two lunch ladies of fraud. Hence, establishing a culture of trust where whistleblowers – be it employees or customers – feel safe and have a confidential fraud reporting system or hotline  serves as an effective fraud detection system. 

Continuous and Diverse Employee Training 

As technology continues to evolve, fraud schemes also become more elaborate. Hence, businesses must be proactive and updated in terms of employee training. In addition to training sessions that cover the potential risks and consequences of fraud, topics such as company policies, noticing and reporting suspicious activities, safeguarding private data and proprietary technologies, cyber security and new developments by competitors in the field should be covered as well. Another method to prevent fraud is cross-training employees to perform basic financial tasks. Doing so, companies reduce reliance on a single individual which lowers the opportunities for individuals placed in a position of financial trust to commit fraud. As multiple individuals monitor financial records, internal audits of invoices can be conducted more frequently and effectively to detect suspicious activities (Towne Bank, n.d). 

Leveraging the use of fraud prevention technologies

In 2021, fraudsters from the U.A.E leveraged artificial intelligence deep voice technology to clone a Japanese company’s executive speech in order to authorise a transfer of $35 million dollars. As instances of cyber fraud become the norm, it is imperative that businesses invest in the development of security measures such as: 

  1. Multi-factor authentication to access sensitive data and to authorise transactions.  
  2. Identity verification (ie. authenticator password and security passwords) to confirm customers’ identities 
  3. Biometrics, machine learning and artificial forensics data analytics tools to detect AI voices and patterns of suspicious login and transaction patterns
  4. Enlist professional support in surveillance of data and financial records for fraud.

According to a 2018 report by the Association of Certified Fraud Examiners, nearly half of companies studied had reported insufficient and weak fraud security control systems while only 37% of companies made use of technologies to detect fraud (Lowers and Associates, 2019). For the companies that enlisted technology, they were able to catch fraud cases earlier, which in turn reduced fraud losses by 50%. Hence, the use of technology to detect fraud is one of the most effective methods to combat the prevailing crisis of cyber frauds. 

Continuous monitoring of bills and activities for fraudulent risks and activities 

As the most common form of fraud, asset misappropriation by means such as altering checks and payments accounts for 89% of workplace frauds, and a median loss of $114,000 (Lowers and Associates, 2019). Other forms of financial fraud could include inaccurate billings from suppliers and vendors which can be prevented by careful reviews of contracts, regular inventory checks and auditing of invoices. Regular reviews of bills, expenditure reports and transactions will enable businesses to notice discrepancies indicative of financial frauds. Coupled with the use of technology to flag suspicious activities, business owners are able to protect themselves from fraud in a more efficient manner. 

Establish and Uphold Ethical Standards 

Through establishing an assertive tone of integrity, ethics and trust that is upheld by top management, a company promotes values of self-policing whilst empowering their staffs to stop all fraudulent activities they notice (Nonprofit Risk Management Centre, n.d). By reenforcing equitable hiring processes that involve thorough background checks, businesses are able to prevent instances of internal fraud occurring. Methods such as running background checks, contacting previous employers and references to validate the truthfulness of applications can provide employers with reassurance that employees are less likely to accept bribes, engage in nepotism, embezzle funds or disclose sensitive information to competitors. 

While the fraud prevention continues to overwhelm business owners financially and operationally, the use of the aforementioned techniques will enable businesses to operate more efficiently as more employees become skilled through the use of frequent training, the need for manual labour decreases with the use of technology and company morale boosts through an ethical footing that supports employee in maintaining their well-being through mandatory vacations and sharing their concerns via secure whistleblower hotlines.

References

(2022, October 2). . – YouTube. Retrieved August 31, 2023, from
https://www.forbes.com/sites/cameronkeng/2018/09/29/forced-vacation-prevents-employee-theft/?sh=4818bebb45bd

Fraud Statistics – Business Fraud Prevention. (n.d.). Business Fraud Prevention, Inc. Empowering Small Businesses. Retrieved August 31, 2023, from https://businessfraudprevention.org/fraud-statistics/

Marks, J. T., & Ugo, P. A. (n.d.). A Violation of Trust: Fraud Risk in Nonprofit Organizations – Nonprofit Risk Management Center. Nonprofit Risk Management Center. Retrieved August 31, 2023, from https://nonprofitrisk.org/resources/articles/a-violation-of-trust-fraud-risk-in-nonprofit-organizations/

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