According to the Association of Certified Fraud Examiners, the financial toll of occupational fraud grows exponentially with collusion. A single fraud perpetrator causes a median loss of $75,000. 
When two individuals collaborate, that figure jumps to $135,000. And when three or more team up? The median loss skyrockets to $329,000. These numbers underscore the destructive power of collusion.
Beyond the financial hit, fraud can tarnish a company’s reputation. Investors, lenders, customers, and the public may perceive the organization as untrustworthy or poorly managed. To protect your business, it’s critical to proactively discourage collusion and other fraudulent activities.
Strengthening Internal Controls
Internal controls—policies and procedures designed to deter criminal behavior—are a cornerstone of fraud prevention. However, colluding employees often bypass these controls. For instance, a manager might override safeguards to enable payroll or expense reimbursement fraud.
To counteract this, ensure your controls are robust and regularly monitored for compliance and effectiveness. Any failure to follow a policy should raise a red flag. Surprise audits are another powerful deterrent. Focus these audits on vulnerable areas like inventory or cash-on-hand, and engage external fraud experts to conduct them. Keep the details confidential to minimize the risk of colluding employees altering records or covering their tracks.
Monitoring Workplace Dynamics
While fostering a collegial environment is important, certain workplace relationships may warrant scrutiny. For example:
- Is a non-accounting employee spending excessive time behind closed doors with an accounting staff member?
- Is someone overly friendly with a vendor?
Vet all vendors carefully to ensure no suspicious connections exist, such as matching contact information between employees and suppliers.
Additionally, monitor employee communications, including emails and instant messages on company systems. Seek legal counsel to ensure compliance with privacy regulations. Watch for signs such as cryptic messages or disrespect for company policies, which could indicate potential fraud.
Rotating Responsibilities
Implementing a job rotation program can make it harder for fraudsters to conceal their actions. If an employee resists participating, it could signal a red flag worth investigating. Similarly, require all employees to take vacations. Pay attention to those who avoid time off or insist on specific colleagues covering their responsibilities during absences.
Cultivating an Ethical Culture
An ethical workplace starts at the top. Leadership should model integrity by adhering to controls and addressing any rule-breaking or suspicious activity promptly. Establish a confidential fraud tipline to encourage employees to report concerns.
Consider integrating ethical behavior into employee evaluations to reinforce its importance. This sends a clear message that fraud will not be tolerated, making it more challenging for dishonest employees to find collaborators.
If you need assistance strengthening your fraud prevention strategies, contact us for expert guidance.
