Fraud Prevention Strategies
Newsletter, Issue 3 January 2000

Recent organisational fraud victimisation surveys indicate that, although fraud is a growing concern for both the private sector and public sector, most organisations are still reluctant to report fraud to the police for reasons ranging from a fear of bad publicity, inadequate evidence and the time and cost involved in prosecution.  As a consequence, no one knows for sure the extent of fraud or the cost to Australia.

According to these surveys, Government organisations were among those that reported the greatest monetary losses.  These surveys furthermore found that, although effective internal control systems are important, a significant percentage of frauds are discovered only by chance through, for example, anonymous tip-offs. 

Clearly, organisations should be concerned about the level of fraud they are not discovering.  Being forewarned is therefore possibly the best preventive strategy to embrace.  This newsletter attempts to raise awareness of fraud control strategies, in particular, those strategies that have been proven to be effective in preventing criminal fraud.

Fraud is a crime perpetrated by a motivated offender taking advantage of an opportunity.  Fraud is only one of many business risks and, like other risks, can seldom be completely eliminated.  It can, however, be managed to minimise potential loss. 

The establishment of sound fraud control procedures, appropriate to the environment of an entity, should therefore form an integral part of the entity's risk management strategies. 

The four stages at which measures for the control of fraud may be implemented, are prevention, detection, investigation and punishment.  A policy focussing on prevention is likely to be the most effective, therefore policies and systems should be in place to minimise motivation and opportunities to engage in fraud.

Fraud prevention involves more than merely compiling carefully designed fraud control policies.  It also involves putting in place effective accounting and operational controls, and the maintenance of an ethical climate that encourages staff at all levels to actively participate in protecting public and private money and property.

Although fraud prevention plans will obviously vary from one organisation to another to meet particular needs and circumstances, the following strategies and techniques have been proven to be effective in fraud prevention:

·        be alert to the possibility of fraud;

·        periodically review all functions and operations and assess the organisation's exposure to the risk of fraud;

·        develop a fraud control plan;

·        instil a culture of ethical behaviour in the organization;

·        ensure all staff and external contractors are aware of the organisation's attitude to fraud and their consequences;

·        train management and staff in fraud awareness and prevention;

·        identify in advance those responsible for fraud control activities;

·        maintain strict recruitment practices and confirm that employee details and references are thoroughly checked;

·        ensure accounting and operational controls are effective;

·        be alert to indicators of fraud;

·        introduce mechanisms available to all staff to report fraud (such as 'hot lines'); and

·        set severe penalties for fraud.