Should You Implement Fraud Controls?
I find it puzzling when companies are hesitant to implement preventive measures to protect against fraud. They perceive the cost of implementation outweighs the potential benefits or they surmise the risk to be low as their industry or business is not a target for fraudsters.
Companies should consider these additional actors when deciding whether to administer certain preventive measures.
Potential financial losses: The cost of a fraud incident can be significant, including direct financial losses, professional fees, reputational damage, and lost business opportunities. When fraud occurs it can refocus company personnel away from their “day job” affecting the operations of the business.
Legal and regulatory requirements: Many industries are subject to legal and regulatory requirements for fraud prevention and detection. Companies failing to comply can face fines and other legal consequences.
Reputation and customer trust: Fraud incidents can damage a company's reputation and erode customer trust. Companies work hard to build relationships. A fraud occurrence can cause clients to look elsewhere for services or products.
Operational efficiency: Fraud incidents can be time-consuming and disruptive to a company's operations. Implementing effective fraud prevention measures can help reduce the time, expense, and resources required if a fraud incident occurs.
Employee morale: Fraud incidents can have a negative impact on employee morale. Reassuring employees that the company takes fraud seriously and is taking steps to protect its assets is helpful.
In a company imposing preventive measures, the perception is often that they must have had an incident which prompted the implementation. While it is true that companies often put controls in place after the fact, this perception should not deter a company from implementing preventive measures.
Companies should communicate with their customers, employees, and investors, about their efforts to prevent fraud and protect their assets. By proactively communicating about their fraud prevention measures and their commitment to protecting their stakeholders, companies can help alleviate any concerns or suspicions about their motivations for implementing these measures.
Ultimately, preventing fraud is a critical aspect of running a successful business, and companies should not hesitate to work with lawyers on the legal aspects and forensic accountants on the operational procedures to implement measures to protect themselves and their stakeholders. The benefits of preventing fraud far outweigh any potential negative perceptions about implementing preventive measures.
By considering these factors, companies can make a more informed decision about whether to invest in fraud prevention measures and which measures are most appropriate for their specific circumstances.