Internal fraud is estimated to cost companies an average of 3% to 5% of their revenues each year. Executives are usually unaware of any fraudulent activity, or they tend to underestimate the amount of fraud that is occurring, often believing that their employees are more trustworthy or that they are more effective at finding fraud than their peers.
However, most fraud is only discovered following an internal tip. It is better to assume fraud is occurring in your company and implement a proactive fraud-prevention program to manage your company’s risk. Generally, compliance with Sarbanes-Oxley and other regulations is not comprehensive enough to mitigate internal fraud.
Since most fraud is not detected by companies, it is hard to measure the effectiveness of a fraud prevention program. Yet, most companies should see a quick return on their investment. Even cutting 10 percent of your internal fraud losses could result in significant savings.
An effective fraud prevention program would include:
- Procedures and policies that prevent a single employee from having too much access and authority
- Data analytics to identify common warning signs in financial data
- A clear chain of command for employees to report suspected fraud, and
- Implementation of regular surprise third party fraud-detection procedures.
For more on internal fraud, please see CFO.com
. For information on how REDW can help you implement a fraud prevention program, please contact Steve Cogan