Training for the Trenches: Implementing Fraud Awareness

November 9, 2019

The Association for Certified Fraud Examiners (ACFE) estimates that organizations lose 5% of their annual revenue to fraud. While this number is only an estimate and subject to limitations, the amount of damage caused by occupational fraud on an annual basis is likely far more significant than most organizations anticipate. Based on the ACFE’s 2018 Report to the Nations, organizations with anti-fraud controls in place detect fraudulent activity sooner and suffer lower fraud losses than organizations without such controls. As a result, organizations that proactively engage in anti-fraud initiatives have a competitive advantage against those that do not.

When considering anti-fraud initiatives, organizations should focus on areas where they have the greatest ability to influence the potential fraudster. Of the three primary driving factors that contribute to fraud–pressure, opportunity, and rationalization–organizations are in the best position to influence perceived opportunity. Organizations have little influence over the pressures an employee faces in his or her life outside of work, nor can they significantly affect the rationalization(s) that an employee might use to justify unethical actions. However, they can significantly influence the opportunity a potential fraudster has. An employee may be facing major financial pressures from personal debt or may feel that the organization “owes” them for their undercompensated hard work, but an employee will be far less likely to address these concerns through fraud if they do not see an opportunity to commit the crime without being caught.

Internal controls are an organization’s best defense against fraud, but...the potential fraudster must be aware of such controls.

Internal controls are an organization’s best defense against fraud, but to provide any preventative benefit, the potential fraudster must be aware of such controls. For example, installing a camera over a cash register is an effective preventative control against employee theft, but only if the employees know the camera is there. Hidden controls are a key component of an organization’s anti-fraud efforts, but they are primarily useful in detecting fraud that has already occurred; they do little to prevent fraud.

Additionally, an internal control, hidden or visible, is only as good as the individual who executes that control on a regular basis. Having transactions reviewed and approved by a separate individual from the preparer is a very common control, but it is not effective if the person approving the transaction does not understand what to look for or believes that questioning the transaction will result in negative consequences. This situation is particularly relevant in a university environment. Universities are often highly decentralized and, due to their structure, often employees responsible for approving transactions carry less authority than the individuals whose transactions they are approving.

Universities are often highly decentralized and...employees responsible for approving transactions carry less authority than the individuals whose transactions they are approving.

Providing adequate training to employees and empowering them to question transactions they do not understand greatly enhances the effectiveness of the review process, which in turn decreases the perceived opportunity that a fraudulent transaction may go undetected. Implementing an organization-wide fraud awareness program can help employees gain awareness of what to look for when reviewing transactions. It can also make key employees aware of ways to report situations in which they feel uncomfortable approving a questionable transaction.

When developing an employee fraud awareness training program, the most critical points to convey are:

Fraud occurs at all organizations and is often committed by long-term, college-educated employees without criminal backgrounds
Employees responsible for reviewing transactions are essential components of an organization’s anti-fraud efforts–they are the first and best line of defense against fraud
If an employee suspects that fraud may be occurring in their area, he or she has multiple avenues for discussing their concerns and will be protected from any retaliation that may occur

These points help emphasize the importance of each employee’s role in the university setting and should be the primary takeaways from the training. In addition to the points listed above, there are several other valuable lessons to consider when designing a fraud awareness course.

Explanations and examples will assist employees in knowing what to look for and help them better understand various fraud schemes.

A comprehensive program should define fraud and explain the difference between fraud, errors, waste, and abuse. To reinforce these concepts further, provide examples of different types of fraud commonly found in the university setting. These explanations and examples will assist employees in knowing what to look for and help them better understand various fraud schemes. In addition, a portion of the training should focus on how to identify red flags and how those warning signs manifest themselves in financial transactions and/or employee behaviors. Showing examples of fraudulent documentation from actual fraud cases at an institution provides a challenging and engaging way to practice critical review skills. Lastly, the training should inform employees about all the available methods for reporting concerns and include a discussion on the institution’s policy on retaliation.

Training employees about fraud, especially those who review and approve transactions, can effectively extend anti-fraud efforts and provide a strong deterrent to fiscal misconduct by decreasing a potential fraudster’s perceived opportunity. By training and empowering the employees who are best positioned to identify questionable transactions, an organization has the potential to make a truly significant impact on fraud.

About the Author

Laura Ling

Laura Ling is an experienced audit professional with more than 15 years in internal and external auditing. Ms. Ling has been involved in fraud investigations for the University of Florida for seven years and recently launched a Fraud Awareness training for University staff. Prior to working in the Office of Internal Audit at the University of Florida, she worked for their Finance and Accounting department, and Performing Arts department. She was also an Audit Manager for PricewaterhouseCoopers.

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Training for the Trenches: Implementing Fraud Awareness