Protect Your Business: Curb Insider Threats

Today’s businesses label fraud as one of the biggest problems they face. Not only does it cost you money, but it also significantly hampers your progression. Nevertheless, Price Water-house Coopers says over half of all businesses in the United States have been affected by it — in specific, financially. Considering the detrimental effects of fraud you can see why it’s so important to take steps to prevent it. This should start with evaluating your company’s internal and external since fraud can be divided into internal or external categories. There are numerous forms of internal fraud with the primary type being employees’ deeds and misdeeds. You can handle this in several ways.

Implementation of Employee Monitoring Systems

Trip Wire says the most efficient way to prevent internal fraudulent activity is to monitor your employees. Several types of monitoring systems exist, including automated systems that record the time which the employee reports to and leave from work. These prevent employees from defrauding you of valuable time by reporting for work late or leaving early. You can also install cameras in your office to ensure that the employees are held accountable while at work.

Auditing

This is the most important element of fraud detection and prevention. You’ll want to perform audits on a case-by-case basis to make sure you detect and prevent any fraudulent activity. This involves evaluating systems within your company (e.g. checking the transaction records in the bid to determine the flow of cash from one account to another, inventory checking). You should also implement the use of accounting software to monitor the flow of cash within your company. The use of case management systems also plays an important part in making sure that your employees are working as they’re supposed to. Overall, auditing creates a sense of accountability among your employees.

Communication

CSO Online says the best way to strengthen your business’ internal controls is by improving your communication process. Here you should always make sure that your key stakeholders are aware of the major events that are taking place. This allows them to be able to fix things that are broken, but it can only happen when regular interaction and communication between departments occurs. For this reason, you should always establish communication protocols that your entire corporation can agree upon. This should always include critical incident event distribution notification processes and procedures so that everyone knows when an incident occurs and understands what their role is regarding it.

Some of this has to do with the ethics, hotline and event notification systems that your company uses — pursuant to Sarbanes Oxley requirements. While many industry professionals have experience with the operation of ethics and compliance hotline systems, not all incidents are reported through these compliance mechanisms. As such, the notification of stake holders usually falls under a first responder type of program, even though it’s imperative for companies to define these processes and communication protocols beforehand.

One of the most effective notification systems is one that operates over a central server so that predefined employees receive event messaging in “real time.” This ensures that they know about the incident in a timely manner so they can make an immediate, unified response. While most companies utilize either an in-house resource or contract with a vendor to provide these ethics, code of conduct and incident reporting services, when handled internally you’ll have more opportunities to evaluate reported events and any deficiencies that may exist. The best way to do this is to evaluate your communication protocols.

Segregation of Duties

An area in which you can greatly strengthen your internal controls involves the segregation of duty policies. Oftentimes this is referred to as the “primary internal control.” You need adequate segregation of duties involving custody, authorization and control of source documents and records here. In other words, one person shouldn’t have the sole authority to initiate a transaction, authorize or approve a transaction and complete the transaction without someone in a different level of management approving it first. When there isn’t the proper segregation of duty policies present, fraud and theft can easily occur. This usually occurs in the finance area where someone has unsupervised control over company funds and documents (e.g. checks) and access to banking accounts. If your internal controls here are lax it’s easy for this person to write themselves a check without it every being detected.

It’s important to use established fraud prevention best practices that segregate financial duties (e.g. cash disbursement) among multiple employees. This ensures that nobody can manipulate the entire process without someone else knowing about it. Of course, it’s equally important for your company to also conduct random audits to reconcile financial transactions. This shouldn’t only be done in regards to writing checks but also for credit cards and electronic payment tools as well. These are other areas in which employees can create “phantom” vendor accounts and false invoices through which they can launder money.

Prevention of External Fraud

You can’t overlook external fraud either. While the perpetrator is outside your business, they’re still seeking to infiltrate your company. It’s important to learn how threat detection methods can help you here.

One of the most conducive threat detection programs occurs when you simply conduct a comprehensive background check to determine an applicant’s integrity. This goes a long way in making sure that the employees you hire are as ethics-abiding as possible.

You should also install electronic systems and solutions that work towards preventing electronic-orchestrated external fraud. Sophisticated machines like biometric verification systems are an effective way to prevent forged signatures here. You can also install data protection systems like the use of passwords and firewalls, as well as algorithms that mediate data access by verifying the source of a data access request.

A Concern for Every Business

Clearly, fraud prevention should be a major concern for every business today. Ideally, you’ll want to invest in developing mechanisms that seal off any potential loopholes that could be used to perpetrate this activity. There are many different methods you can use here depending on what type of fraud threats your business is facing.