Organized Fraud Prevention: Putting the L.E.D.E.R To Work

By Sharon M. Shaw, CFE

The Pink Boot (its real)

Preparing for successful fraud prevention is like preparing for a first child: the environment is carefully scoped out from the child’s level, and anything that could possibly cause the little darling harm is removed. Drawers and cupboards are locked and anything valuable is put out of sight.

After the first child, prevention becomes more proficient: obvious dangers — and some not so obvious ones — are known and accounted for. For example: even though a 250lb, six foot tall man cannot get the paint can open, a three-year-old will — within seconds — and no matter how wonderful neon pink looks on the walls, it doesn’t look quite the same on Daddy’s new work boots, or as footprints on the new carpet.

Fraud prevention is similar to childproofing.

Unfortunately fraud footprints are not neon pink and are not always obvious. They can, however, be prevented with some basic common sense. The environment needs to be examined from a potential fraudsters perspective; lessen any obvious risks, and plan for the not so obvious risks.

I have developed a five-part system, dubbed LEDER (pronounced LEADER), to help with this process:

• Look
• Exploit
• Define
• Explore
• Re-Evaluate

LOOK at what rules are currently in place

First of all define what fraud or wrongdoings are within the organization.

There is no one-size fit’s all: every organization is different and what is acceptable to one company or organization is not acceptable to another.

Does the organization have an ethics policy?

The ethics policy should clearly define what is acceptable behavior, be easy to understand and follow, and should be adhered to from the top down and bottom up.

Many ethics’ policies say wonderful things but do not clearly define boundaries. They are often generalized with no real meaning to individual employees. A compliance officer’s definition of ethical behavior may be different than a sales agent’s view when he or she is trying to meet the monthly goals.

Push the Boundaries and EXPLOIT rules

Permission granted to behave like a three year old –  exploit the defined boundaries.

See how they measure up to everyday protocol. Are they adhered to vigilantly or are deviations used to make the process smoother? Where does the system break down?

Set the standard, DEFINE the intended rules in plain language

Without a policy that clearly defines boundaries, it is difficult for people to do the right thing even if they want to. It’s like being blindfolded and told not to walk off the cliff. Ethical standards need to be set throughout the organization if fraud prevention is to be successful. A well-written policy that clearly defines what can and cannot be done has little meaning if the CEO does not adhere to it, or the top sales person regularly violates it with no consequences.

EXPLORE, the magic eight balls says…

Brainstorm and explore the unknown.

Pull out the ethics policy and look at it objectively. What does it really say?

Does it clearly say what can and cannot be done?

What does “Protect and ensure proper use of company assets” actually mean? Maybe it is okay to use the company fuel card to fill up personal vehicles; after all, the card was kept safe and only used for its intended purpose.

Plan for the unusual (but believable).

The more events that are planned for the more likely the organization is to stave off fraud in the future. Creating extra steps to obtain valuable information or assets will deter would be fraudsters since most fraudsters follow the path of least resistance.

Organizations whose employees clearly understand the ethical values of the company, and adhere strictly to them, have a far better chance of preventing and detecting fraud than a company who has a well-written ethics policy that nobody really understands.

RE-EVALUATE and adapt

Were procedures exploitable?

Are there possible events that were not planned for?

Successful fraud prevention requires that knowledge be turned into power. To have power against fraud, policies and procedures must be continually re-evaluated to ensure they are resilient. Look again; what can be adapted to thwart those magic eight ball scenarios.

By “following the LEDER” it is possible to get better results:

• Look – What have you got?
• Exploit – Can it be broken?
• Define – What do the rules really mean?
• Explore – What could happen
• Re-Evaluate — Redefine policies so there are fewer opportunities for fraud to occur. .

Share your experience in the comments below.

Knowledge is power and together we are stronger in the fight against fraud.