Money & Finance

How to Use Technology to Prevent and Detect Fraud

New and up-to-date technology is absolutely necessary to combat fraud more effectively and efficiently through data solutions, procedures, workflow and improved risk management.

Don’t Let Your Small Business Become a Victim

New and up-to-date technology is absolutely necessary to combat fraud more effectively and efficiently through data solutions, procedures, workflow and improved risk management. Regardless of the technological tool, collecting and analyzing data is of utmost importance. Proficient fraud detection depends upon the methodical ability to accumulate and quickly evaluate large amounts of data, while identifying activities and patterns symptomatic of potential fraud.

Small businesses, of all business segments, are most susceptible to occupational fraud — an internal fraud, usually perpetrated by employees. This does not mean that your employees are not trustworthy, just that there should be an awareness of the types of fraud that can happen and what to look for. Most business owners are misguidedly secure in the thought that he or she will not be a victim of fraud within their organization. However, according to the Association of Certified Fraud Examiners’ (ACFE) Report to the Nations on Occupational Fraud and Abuse (2012), the median loss to small businesses caused by occupational fraud in the survey conducted was $140,000 and an estimated 5 percent of revenues are lost every year to fraud. Small organizations, those with fewer than 100 employees, continue to be the most common victims in the fraud instances reported to the ACFE.

Occupational fraud committed by employees can be perpetrated in collusion with another party (a second employee or a third party) or the employee acting alone. Common acts are misappropriation of assets (such as the theft of cash or receipts), fraudulent disbursements (e.g. billing schemes, payroll schemes, expense reimbursement schemes, and check tampering), and the theft or misuse of inventory
or supplies.

Identifying Anomalies

There are ways small business owners can combat the threat of fraud within their organization. Modern technology enables organizations to dig deeper into data to prevent and detect frauds. Analyzing the multitudes of data that an organization produces can be a daunting task. Gone are the days of the 13-column pads and simple Microsoft Excel spreadsheets; data is recorded and stored in accounting applications that permit the user to extract useful information for analysis or export to tools that can provide additional analysis.

Technological advancements in data analysis, such as link analysis, data visualization, predictive modeling, and other analytic testing, are useful tools to ferret out anomalies, patterns, and specific associations within thousands of transactions. One example of data analytics is data mining, which is used to classify and segment data by applying rules to view specific associations or find significant patterns, including those related to fraud. There are many technological tools available for every need and industry to best serve your specific analytical requirements and professional help when needed.

Assessing the risk of fraud is crucial for small businesses. It is important to have internal controls in place, risk assessment analyses performed to know where the weak links are, background checks on employees when hiring, restrictions on employee activities, and organization-wide awareness. Internal controls are policies and procedures to prevent unauthorized or imprudent use of organization funds, prevent fraud and loss by safeguarding assets and documents (i.e. segregation of duties) and promote efficiency in workflow.

What You Can and Should Do

Risk assessment is a process to determine potential hazards in the organization and what could happen if those hazards were to occur – similar to a hurricane emergency plan, but for the protection of an organization’s assets for the potential loss and probability of occurrence. Background checks are a good idea when hiring employees to verify they are not criminals and are eligible to work.

Putting restrictions on what your employees have access to will limit the potential of misappropriation of assets; if an employee has access to all aspects of an organization the potential for fraud is greatly increased. Most accounting software systems allow users to have specific access to only certain aspects of the system, such as accounts receivable. Actions that can raise awareness include implementation of a training program for employees to identify and understand fraud, execution of a code of ethics, and having a whistleblower policy or tip line.

The advances in technology and the resources available can assist small businesses in detection and prevention of fraud. Do not let your organization become a victim to an easily preventable fraud. This may seem an overwhelming task; consult a professional for guidance and put your mind at ease.

Cindy-ParrCindy Parr, CFE, is a senior auditor with Whittaker Cooper Financial Group, Certified Public Accountants and Consultants. Contact her at (321) 723-3352

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