Thursday, May 13, 2010

The Effect of Fraud and Motivation for Fraud Prevention

Victim organizations of fraud are left with a loss of money or goods, costing organizations millions of Rands each year in losses, lawsuits, the detection and investigation of fraud, and increasing costs to replace the losses. When organizations publicise fraud committed within the organization, these actions can be detrimental to their good reputation. The overall feeling when fraud occurs is negative. When a negative work environment is created, it increases the risk of fraud. Employees of an organization may feel that they have been used by the company, and may want to take revenge by committing fraud.

Creating a positive work environment and positive staff morale will decrease fraud in an organization, because employees will feel good about themselves and the work that they are providing. Creating a positive work environment can bring extra costs to the company, for example, team buildings, rewards, etc. all costs money. The costs involved to prevent fraud, will be less than frauds committed, the detection, and the investigation of frauds. As the saying goes, you have to spend money to make money. To further prevent fraud, an organization has to pay for the proper vetting, and training of new employees, especially when it comes to fraud. When employing new people, it is better to check their criminal records, phone their references, look at disciplinary records from previous businesses, audit their CV’s, do background checks regarding insolvency, test their technical competence, and also send them for psychometric testing, making sure that the best candidate for the job is appointed, decreasing the risk of fraud.

Training employees will usually consist of the organization’s values, a code of conduct, and their job requirements and system training. It is the organization’s responsibility to make sure that focus is placed on career development. Daily statistics and goals should not be set too high, if it is unreachable, employees become negative and unmotivated. A person who is good at his/ her job will feel proud of standing out among the rest. The better an employee is trained, the better the employee will perform, increasing business for the organization, and staff morale.

Competent organizations have better reputations than incompetent organizations. With regards to the code of conduct in an organization, it must have a duty list regarding fraud enclosed. The fraud statement must list the types of issues, including actual suspected fraud, and a list of specific examples of fraud. Steps on how to report fraud has to be communicated, and anonymity is a must. Although training employees and creating a positive work environment will cost a company large amounts of money, the money saved in doing it will be larger.

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