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.

Their SUV deeply submerged in a snowdrift John and Starry, through marital “discussion,” determine their GPS might have been wrong to suggest that last turn.

Effective fraud prevention requires an encompassing approach that looks at the chain of events before and after the current point — often called a 360-degree review. Skip this step and end up charting a course of action that has similar results to John and Starry’s adventure. Blindly relying on technology alone like John and Starry did does not ensure an unscathed surfacing from a potential fraud whiteout.

Use the three Ps: Past, Present and Potential

Potential is only realized after acknowledgement of the present and the past.

To be successful in fraud prevention requires a plan to effectively utilize all known facts, good or bad, and accounts for potential outcomes.

Accept the Past — No Matter How Unbelievable

Ask Harry Markopolos, the whistleblower in the Madoff downfall, how it ends if the reality of a situation is ignored. Had authorities taken heed of his earliest warnings the Madoff losses may not have been quite so devastating for so many.

As children we learn to avoid the truth (and responsibility) to escape the wrath of the unknown. As adults this learned response is sometimes forced to continue to satisfy unrealistic goals.

Accepting responsibility for what is happening is one of the hardest lessons to learn and some are determined to never master this ability.

Accepting the past – as it happened – is important in order to understand the path to effective fraud prevention in the future.

Realize the Present

Take a deep breath and acknowledge the current situation.

This is often an iterative process, and may require a bit more thought than initially considered. When it comes to business – the initial situation may appear that sales are being lost (and revenue declining) at an alarming rate. But is this the symptom, or the problem?

In this example, acknowledging the present requires going a bit deeper. Probe the cause(s) of the loss in sales. Is the service quality lacking, are delivery times unacceptable or is a competitor undercutting the pricing structure with major clients?

To uncover the truth often requires questions, conversations, patience and the stomach to face what the real challenge may be.

The upside of taking the time to do this is that preventing fraud is much easier when the real problem is known and defined. By dealing with the surface issues and ignoring underlying problems, the opportunity to prevent the seeds of fraud from germinating is missed. Only by removing the seed can fraud prevention be effective.

Harness the Potential

So where does the third P, potential, come in to play?

Once the problem is analyzed to the root, it needs to then be considered with the lens of “potential” – what will happen if action is not taken?

In our example, a loss of sales and revenue can easily put an organization out of business and these affects can be further reaching:  they can have a detrimental effect on the community and the world economy as a whole.

Ready to strap on a cape and save the world?

Baby steps lead to great things and the first step is the most important.

Resolve to step back and engage the three P’s of a current challenge. By analyzing the real challenge, it is possible to take control, move forward and devise a more productive plan.

Taking control is scary it means assuming responsibility for future, unknown, events.

To Decrease Fraud Risks, Review The Alternatives

The effects of fraud may not yet be felt, however if the situation goes unchecked it may not be long until they are. Talk with those involved and ask what suitable solutions could be. If both sides understand and are committed to a common goal an effective solution is easier to implement and has a higher chance of success.

Don’t hang up the cape yet; there is still work to be done.

The real problem has been found, the solution evaluated and a plan devised to implement that solution so, that’s it right?

Wrong, the process is not complete.

Successful fraud prevention is a continuous cycle that never stops. A plan devised from future goals and past experiences must be continually re-evaluated in order to be continually successful. Organizations and goals change from minute to minute so what works to prevent fraud today may not work tomorrow.

To stay one step in front of fraud, prevention plans have to be continually adapted to encompass new discoveries.

The journey of fraud prevention is only successful if everyone involved is willing to communicate and share insights. The past is key to understanding how the present became present and without understanding the present potential cannot be envisioned.

I challenge you to use the three P’s to improve one of your current activities and reduce the potential for fraud within the organization.

Share your ideas; questions and experience in the comments below to help us all improve.