Learning How to Prevent Business Fraud

Businesses have to always be careful about fraud. Here's how you can detect the early stages of business fraud and how to prevent it.

The COVID pandemic has resulted in many companies trying to reduce non-essential operations to cut burgeoning costs in response to the downward spiral of revenues. These cost-cutting measures, however, have unintended consequences.

In some cases, internal controls are weakened because certain positions or processes were deemed non-essential. Thus, these were pared down to the bare minimum. Business processes are also being streamlined and consolidated to reduce manpower costs. Additionally, certain positions are being eliminated and incompatible responsibilities are being assigned to the remaining personnel.

For example, in one company, sales personnel were tasked to monitor sales, issue receipts, and collect payments because the cashiers' or collectors’ positions were reduced or eliminated. This resulted in the absence of "check and balance" controls. Sales personnel are thus exposed to undesirable opportunities, such as underreporting sales and intentional pocketing of collections— all without being detected.