Fraud risk is likely to occur in any business regardless of industry, size, or location. Fraud can be carried out by both internal (employees, managers, board members, etc.) or external (customers, vendors, etc.) stakeholders. When it comes to protecting your business, it essential to invest in fraud prevention and detection. Regardless of the size or type of fraud, systems and control processes must be implemented to protect against or minimize the risk of fraudulent activity.

The three types of fraud include:

  • Internal Fraud (or occupational fraud): fraud committed against an employer by an employee, manager, or executive. For example, personal gain through deliberately misusing company resources or assets.
  • External Fraud: fraud committed against a company by a customer, vendor, or other external organization. For example, vendors billing for goods or services not provided, customers returning stolen or fake items, or third parties hacking systems for sensitive information.
  • Fraud Against Individuals: fraud committed against unsuspecting individuals. For example, identity theft, phishing schemes, or Ponzi schemes individuals.
A fraud risk assessment identifies areas within the business that are most susceptible to fraud based on a key understanding of the organizational risks. Once the risks have been identified, a plan must be put into place by implementing controls and assigning an individual or team to monitor for unusual activity. If fraud is suspected, an internal audit of processes will flag any transactions warranting an investigation.
If fraud is alleged or suspected, it is best to leave evidence and artifact gathering to a professional so that it does not become tainted and later inadmissible in court. When fraud is suspected, Certified Fraud Examiners can be hired to perform a variety of tasks to determine the origin of the crime and determine next steps for resolution, including notification of law enforcement or corporate security. The fraud investigator’s key role is to collect evidence of the fraudulent activity and thoroughly interview key individuals associated with the fraud (e.g. employers, complainants, and potential witnesses). Additional actions include researching records and transactions, documenting and reporting findings, serving and executing warrants, and functioning as an expert witness in court. In the end, should illicit activity be confirmed, fraud investigators will work with law enforcement and prosecutors to present their results and testify in court when required.