Basic Steps

to Conducting an Annual Fraud Check Up

Educate-the-WorkforceFraud can be catastrophic for any size organization.  Often companies unknowingly allow fraudulent activities to happen because they have been complacent in their review of their current internal controls.  When a system is working it is easy to set aside evaluating it in favor of reviewing processes that are knowingly flawed. 

The most cost-effective way for a company to limit its loss from fraud is to be proactive in implementing preventative measures to stop fraud before it starts.  An annual review of these measures ensures that risk is kept to a minimum.  An annual fraud review should include (1) review of management’s stance on fraud (2) educating employees on the company’s stance and (3) reviewing departmental segregation of duties.

Start at the Top

Senior management sets the tone over the importance of maintaining effective controls over fraud.  Senior management should review their stance on honesty and integrity in the workplace and make sure it is communicated to all employees in writing.  There should be a scheduled review of performance goals for employees to make sure the goals are realistic.  Employee morale needs assessing regularly as well.  Employees feeling secure in their jobs decreases the risk of fraud committed by them. 

Management communication of their stance on fraud must be documented in writing to be most effective.  Having employees sign a code of conduct emphasizing the value of honesty and integrity is important.  Establishing a whistleblower policy and providing it to all employees increases the probability that people will feel comfortable reporting instances of fraud.  Going hand-in-hand with the whistleblower policy is management’s regular communication that there is no fraud threshold; all instances will be reported and investigated. 

Educate the Workforce

New employee orientation is the perfect time to introduce the company’s belief in the value of honesty and integrity in the workplace.  Once these traits are introduced initially through orientation, employees can then receive training and updates on an annual basis, along with other company training.  Preventative fraud training should be considered a part of ongoing company updates to emphasize to employees that it is considered a key component of the company’s structure.  Employees develop a sense of security in knowing that there is a plan in place for reporting and evaluating fraudulent activities.

Check Your Departmental Segregation of Duties

A review of the segregation of duties structure within each department is crucial to maintaining strong internal controls.  Due to turnover or unexpected absences, responsibility over departmental duties may shift during the year and cause issues with duty segregation.  This evaluation makes sure that the duties of authorization, recording, and custody of assets are separated among department employees.  Duty rotation is another to increase the strength of the segregation of duties within a department.  A rotation can be established and reviewed annually as part of the segregation review.        


There is no way to provide 100% protection from fraud for any company.  However, companies have it in their power to establish strong controls and practices to protect from fraud.  Consistent evaluation of these controls and practices ensures that management is doing its best to maintain a workplace of integrity and honesty.