10 Essential Steps of Fraud Prevention

10 Essential Steps of Fraud Prevention

Talks about fraud prevention have become more frequent lately because of the risk of loss that can arise from it. Financial fraud can occur in various fields, especially in financial institutions. It’s not uncommon for fraud to be a big threat that can hinder you from running a business or meeting with customers.

You don’t need to worry about fraud because fortunately, this action can be prevented before it occurs in an office environment. One way is to have comprehensive knowledge about fraud and know the various types of fraud. Read the following discussion to better understand the definition of fraud, its forms, and steps to prevent it.

What is a Fraud?

Fraud is a deliberate crime of deception to harm other parties by profiting from them illegally. Fraud can occur in various fields, such as financial institutions, businesses, and government. In the context of financial institutions, fraud can take the form of money theft, falsification of identity, and document forgery.

Fraud is usually carried out by individuals or groups who want to gain illegal profits. As a result, victims of fraud will suffer material and immaterial losses. Furthermore, fraud can also pose a greater risk of loss to a company or organization because their financial condition and reputation are at stake, especially when their fraud prevention schemes are lacking.

There are two general categories of fraud, such as internal fraud committed by employees or members of the organization and external fraud committed by parties outside the organization. Internal fraud is carried out in the form of abuse of authority, embezzlement of money, or document forgery. Meanwhile, examples of external fraud are internet-based fraud, identity theft, and identity theft.

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Causes of Fraud

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It’s not without reason that fraud can occur in your company environment. Fraud can occur because it is driven by internal factors within the perpetrator or external factors that come from outside the perpetrator. The following is a complete explanation of the causes of fraud in financial institutions.

1. Situational Pressure

Poor economic conditions can be a major reason someone commits fraud at work. Giving incentives or salaries that do not match expectations encourages them to commit fraud to meet their economic needs. In addition to poor economic conditions, social conditions such as bad environmental influences or workplaces full of nepotism can also be contributing factors.

2. Loophole to Commit Fraud

Have you ever heard the quote “crimes happen not only because there is an intention of the perpetrator, but also because there is an opportunity”? Yes, perpetrators of fraud can carry out their actions whenever an opportunity arises before their eyes. This factor is usually often classified as internal fraud committed by employees within the company. They can take advantage of exploitable loopholes in a company to commit fraud.

3. Vulnerability in the Security System

A weak financial security system can also be a loophole for perpetrators to commit fraud. This factor is further exacerbated by fraud perpetrators who can use sophisticated technology to carry out fraudulent acts. This type of fraud usually occurs via the internet, especially when the perpetrators carry out their actions through cyber attacks.

Read also: What is Cyber Security and Its Types of Threats?

4. Lack of Legal Force of the Company’s Regulations

Fraud can also occur if the company does not understand the rules and regulations related to this criminal act. As a result, they will not implement proper controls to prevent fraud within the company because they do not have adequate legal force. In addition, weak company policies and laws also make fraud perpetrators not afraid to carry out these crimes.

5. Human Vices

It is undeniable that human vices can encourage them to justify any means to gain profit, including committing fraud. People with sufficient greed will always try to get as much money as possible even though they already have enough money to make ends meet.

Common Fraud Practices in Businesses

It is very important to recognize the various forms of fraud to prevent them as early as possible. The Association of Certified Fraud Examiners (ACFE) divides fraud into three levels known as the Fraud Tree, such as asset misappropriation, fraudulent statements, and corruption.

1. Asset Misappropriation

Misappropriation of assets includes the theft of money, goods, and services owned by the company which can result in significant losses.

2. Fraudulent Statement

Fraudulent statements are acts of falsifying information in financial reports or other business documents.

3. Corruption

corruption usually occurs due to a lack of law enforcement power in a country that allows corruptors to commit these crimes freely.

How to Prevent Fraud

The good news is, you can prevent internal and external fraud as early as possible. How to? Follow the fraud prevention methods below.

1. Implementing Strict Regulations

Financial institutions and companies should ideally have strict legal rules to prevent criminal acts from occurring in them. Likewise, you also have to make company regulations that are in line with Indonesian law to do fraud prevention. 

2. Improving SOP

Not only rules but Standard Operating Procedures (SOP) must also be made more stringent to prevent loopholes for committing fraud. For example, you have to establish several separate procedures such as claim procedures, payment procedures, and account control procedures. Separation of the SOP will minimize the opportunity for perpetrators to commit fraud.

3. Performing Audits and Evaluation Regularly

Companies must conduct regular internal audits and evaluations to find weaknesses in the control system that can increase opportunities for fraud to occur. In addition, companies also need to take appropriate fraud prevention measures that can be carried out within the company’s internal environment.

4. Spreading Awareness about Fraud

Fraud can often occur when your employees do not have sufficient awareness about fraud and its consequences. You must provide anti-fraud training to employees as a means of fraud prevention so they can recognize the signs of these crimes and know the steps to prevent them.

5. Improving Internal Controls

Internal control systems such as cost control, company account, and inventory control are crucial for businesses. Therefore, you need to strengthen the systems as a fraud prevention mechanism to eliminate the risk of fraud.

6. Improving the Staff’s Communication

Fraud can also be handled sufficiently if staff or customers are willing to cooperate with you to prevent it. This step is a good example of fraud prevention where you discuss with employees to find out various criminal acts that are detrimental to the company and take the necessary actions. When interacting with customers, you can also find out all kinds of information that can anticipate fraud while working together.

Read also: The Importance of Managing Customer Data with Latest Technology

7. Creating an Investigation System

There’s nothing wrong with creating a specific investigation and fraud prevention system so you can find the root of the fraud problem. Build an effective investigation team whose members must be able to investigate fraudulent acts that occur and take action against fraud perpetrators who bring losses to the company.

8. Implementing Independent Monitoring

Independent monitoring from external parties is also required to combat fraud activity as a means of fraud prevention. They may be tasked with ensuring that the internal control system and fraud prevention procedures implemented by the company are effective and up to standard.

9. Emphasizing the Culture of Integrity in the Company

This step needs to be taken to prevent internal fraud, which is riskier than external fraud. Companies must develop a culture of integrity that is firmly established in the work environment. This culture encourages employees to respect work ethics and reject unethical actions.

10. Strengthening the Security System with Liveness Detection

The final but arguably equally effective step in preventing fraud is to use a state-of-the-art fraud detection system from AdIns. You need to use the Liveness Detection application from AdIns to prevent acts of fraud committed through spoofing. This fraud prevention application is equipped with a deep learning algorithm that can examine photos or videos of potential customers before they work with you.

Contact us through WhatsApp right now to try the demo version of Liveness Detection from AdIns. Perform the most reliable fraud prevention schemes to ensure the best security for your company only with services from AdIns!

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Published date :

08 March 2023