Insurance and risk management equally important in fraud prevention

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Managing and insuring against the risk of corporate fraud has also become increasingly difficult for many companies. “There is simply no accurate way to anticipate which employees are most likely to commit fraud, or when it may happen. An employee’s level of employment is also no indication of the amount of money they may potentially defraud the business of. In fact, the second largest commercial crime claim that we have processed involved a junior employee.”

Meyer argues that businesses that believe they are adequately prepared to prevent employee fraud, are often also at the highest risk. “Criminals are constantly trying to find ways around fraud prevention systems, and, as soon as companies become complacent, they open themselves up to fraud risks.”

He states that companies need to ensure that they take a two-pronged approach to managing their fraud risks. “It is vital for any business to start by confirming that they have the correct insurance cover in place. A full commercial crime policy should cover against staff fraud, possible contractual penalties, and the costs involved in recovering and reinstating office records affected by the fraud.”

Zero tolerance

However, Meyer warns that insurance cover will not be adequate if businesses do not manage the risk of fraud to the best of their abilities. “Given the frequency and severity of employee fraud, insurance policies have become significantly more expensive. Insurers are taking a far stricter approach regarding the risks that they cover, and claims could be denied should it turn out that the disclosures of security measures were not implemented.”

According to Meyer, companies need to begin by adopting a zero-tolerance approach to fraud. “Start by communicating clearly to all employees that instances of fraud or attempted fraud will be dealt with severely. A business also needs to put robust internal systems, audits and spot checks in place to prevent fraud. There should always be a minimum of two people checking transactions and fraud prevention systems need to be automated as much as possible, to make them more difficult to manipulate by individuals.”

Risk assessment

Finally, Meyer says that it is vital to thoroughly assess potential employees. “Always conduct background checks before hiring a new employee, including qualification verification, references from previous employers and credit checks.”

With corporate fraud constantly evolving, and companies coming under increasing strain, he says that businesses can no longer afford to be lax in their approach. “On their own, neither insurance cover, nor risk management is adequate to protect a company against fraud anymore. It is only by making sure that both of these are in order that business owners can rest easy,” Meyer concludes.