Business Management / Culture

How company culture can lead to business fraud prevention

Laura Dolan

Jan 13, 2020 · 5 min read

Toolkit for download in this article

business fraud prevention

Upon hiring candidates to work for your company, you would hope that your human resources team vets them intensely. Many companies issue background checks of new employees, and depending on the state, some may even issue drug tests. Making the decision to hire a new employee comes with many risks, especially depending on the industry. For instance, if you own a jewelry store, it’s imperative that you’re hiring someone you fully trust, especially if they get promoted to key holder. This same person would also need to know the codes to all the safes. Putting that amount of trust into someone is paramount; you want to ensure this individual wouldn’t do something to harm the company or its reputation should they for some reason feel disgruntled or become jaded.

The trust goes both ways. You’re trusting that this employee is going to abide by the rules and work hard to uphold the company’s reputation, but on the other hand, this person is trusting that you will provide them with sufficient income, good benefits, constructive performance feedback, a safe work environment and upbeat company culture.

Note: this article does not endorse any wrongdoing of an employee that would have an adverse effect on a company no matter how good or bad the company benefits may be. Committing fraud on any corporation is wrong no matter how you slice it, and consequences should be carried out that should reflect the most severe punishment.

That being said, having an efficient hiring process in place that screens all employees in the most detailed way will yield a company culture that is based on trust. Nipping the problem in the bud by hiring managers you can count on can prevent issues with employees down the road.

Your managers are the first line of defense when it comes to business fraud prevention. Beyond management, you need to instill in your staff an “if you see something, say something” policy. Make it clear that employees can come to you, the owner, or a manager, if they witness suspicious activity that they can report anonymously to keep themselves protected from retaliation from a coworker. You should also equip your employees by helping them identify warning signs or red flags of certain behaviors they should watch for.

Lay out an organized reporting procedure. If employees know they have somewhere safe to turn to, they may be more apt to report something. Sometimes it may turn out to be nothing or a misunderstanding–if that’s the case, that’s fine. But it’s better to investigate something that could cause serious problems for the company than to ignore it.

According to the Association of Certified Fraud Examiners, businesses lose 5% of their annual revenue due to employee fraud and abuse. Hiscox reported U.S. businesses saw an average of $1.13 million in lost revenue in 2016. Overall, employee theft costs $50 billion per year in losses in the U.S. alone.

It’s a horrible feeling when the company you’ve worked so hard to build gets corrupted by a selfish employee. Many people invest their 401Ks, refinance their homes, or tap into their childrens’ college savings just so they could start their own business, only to see it destroyed in one fell swoop by someone who cheats the company.

Remind your staff as frequently as possible that violating a no-tolerance policy when it comes to company fraud should yield the strictest forms of discipline. Be very clear that any form of fraud, bribes, or corruption will result in immediate termination and possible jail time.

You should also have a fraud action plan in place to protect your company’s assets. Develop a strategy that details who will be involved at which points during an investigation. It’s also wise to provide training in how to best handle the unthinkable and equip your upper management with a constructive approach on how to remedy the situation.

You also need to know how to proceed and help return the company to normalcy. Have a plan in place that notifies the authorities and key stakeholders in the company to the severity of the situation and which steps to take next in accordance with the damage that has been done.

No one, I repeat, no one is exempt from committing fraud. As strong of a background check that you may perform on your new hires, that’s not to say someone won’t choose to deface your company as their first offense. According to the Society for Human Resource Management (SHRM), “Most occupational fraudsters—roughly 87%—are first-time offenders with clean employment histories.”

As much as you do promote a trustworthy company culture that works both ways on employees and upper management, you have to do what you can to protect your company. Installing cameras and being forthcoming with your staff about their existence will discourage them from acting on any impulses that will get them in trouble. You also need to lead by example; strong, ethical behavior must be demonstrated from the top down. If you encourage your staff to bend the rules or cut corners, what’s to stop them from doing the same to you?

Creating a culture of honesty and encouraging honest behaviors is essential to fostering a company environment that’s built on integrity. Emphasize that if something bad happens to the company, it’s not just the owners or the stakeholders who suffer, everyone involved will feel the repercussions.

Even those who stay employed and survive the investigation may suffer a pay cut or elimination of their benefits or life insurance provided by the company due to loss. Underscore how the ripple effect can be catastrophic for everyone involved. The goal is to prevent anything that horrible from happening, but you need to take precautions just in case. Always be ready because you never know what’s happening when you’re not looking.


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