Why Fraud Prevention Is Important
By Rehana Moosa
We have all heard the saying, “An ounce of prevention is worth a pound of cure”. This holds true for fraud – investing in strong internal controls and a good fraud prevention program can save time and money in the long run.
Many businesses hesitate to spend money on fraud prevention because fraud seems like a distant possibility – how many “big” frauds do we hear about? Business owners may believe that fraud happens to others, but not to them. However, recent history has shown us that no business is immune to fraud.
For this reason, investing in fraud prevention is crucial.
Losses are Minimized
According to the Association of Certified Fraud Examiners’ 2020 Report to the Nation, the median duration of a fraud scheme is 14 months before it is detected, with losses of $8,300 USD per month. This suggests that by the time a fraud scheme is discovered, the business has likely already suffered some financial losses.
The losses can vary depending on the type of fraud scheme, and the level / responsibilities of the perpetrator. However, the longer a fraud continues unnoticed, the higher the financial losses will be.
When frauds are prevented, businesses experience losses of zero! Further, businesses will save money in terms of costs to investigate the fraud, hire lawyers and forensic accountants, and use employees to pull together documentation to quantify the losses.
Fraud Prevention Can Be Inexpensive
There are many options when it comes to fraud prevention programs and internal controls.
Cost can be a barrier for some businesses who are looking to invest in fraud prevention. However, not all options are expensive.
For example, duties can be segregated amongst multiple employees to ensure that one staff member does not have complete control over an accounting process or procedure. Another example is requiring management to review financial results on a regular basis, and adequately supervise the work performed by employees. Many accounting software programs have automated controls built in, making them very efficient and cost effective.
Implementing preventative internal controls can be inexpensive, and yet very effective at stopping fraud from occurring, if designed and applied properly.
Many businesses have policies in place to discourage fraud and unethical behaviour. However, having a strong fraud prevention program in place, and a history of enforcing it, can highlight the importance of values such as honesty and integrity to employees, customers, and suppliers.
It can also attract staff and business partners who share these values, and are willing to work with the company to prevent fraud, and even report suspected misconduct.
Another benefit of a fraud prevention program is that knowledge of its existence can, on its own, act as a deterrent, making it more difficult for a scheme to be carried out.
Employees who are aware that their organization take fraud seriously will likely be discouraged from executing a scheme, knowing that there are processes in place to catch the fraud before the employee is able to reap any financial benefits.
Prevention will always be a more cost-effective option compared to discovering and investigating a fraud, and recovering the financial losses.
It is important to note that regardless of the effectiveness of a fraud prevention program, it must be continuously monitored and updated as required.
Businesses who invest the time and money in a strong fraud prevention program will reap the benefits in the long term.
Contact us to learn more. 647-426-0146 | email@example.com
Communications are intended for informational purposes only and do not constitute legal advice or an opinion on any issue. For permission to republish this content, please contact Rehana Moosa Forensic Accounting Professional Corporation.
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