Fraud Prevention Tip: Focus on Checks and Balances that are Rechecked and Rebalanced

I debated making this idea its own tip, as it may be more of a motif that just runs through darn near every one of my fraud tips and posts, but I opted to include it just to make sure that you heard me say it enough times.

Every good organization has checks and balances. The United States government has them via our well crafted Constitution and the division of governmental responsibilities into our legislative, executive and judicial branches. As we’re taught in school, those checks and balances are meant to prevent the abuse of power, which is exactly the same as preventing fraud.

Fraud is an abuse of the power placed in the hands of those you and your company – or the electorate – opt to trust. In most cases, that pertains in some fashion or another to stealing money, but all fraud comes down to an abuse of power.

In fraud cases, it’s rarely some elaborate conspiracy that I detect. It’s generally just one bad egg trying to get away with more than is written into his contract.

The reason I insist on checks and balances in a business and in all things pertaining to money and finances in a business is because checks and balances generally prevent fraud from happening (that is, they’re a psychological deterrent acting as part of an informal fraud policy) – or at least their presence detects fraud early enough to prevent it from being damaging and to fire any perpetrators (and if you’ve been listening to allow you to prosecute them and send them to jail).

Crooks are generally creative, or at least they have a knack for seeing the flaw in a system and subsequently exploiting that flaw. The more checks and balances, the fewer weaknesses and the less potential for fraud.

One of the protests I get to my insistance on additional checks and balances is that they require more personnel or better credentialed employees who are able to juggle these additional responsibilities. That is, checks and balances cost more money and take more time and neither of those, CEOs and managers claim, are available in spades.

But I suppose they have time to figure out where their missing money is going and why – and the money to lose in the first place?

Spend the money preventing fraud rather than on fraud, I say.

It’s like preventative care in medicine. The reason that we’re seeing the rise of PAs, or Physicians’ Assistants, in the medical field is that many of them are being trained to focus on preventative care rather than solely on treating illness and disease. The thinking goes, rather than go to your doctor when you’re already sick and get treated with medications, surgeries and, God forbid, chemotherapy, go to someone regularly and long before you’re sick who can teach you how to take healthful actions that will keep you healthy.

The former is incredibly expensive and pops up in huge and unmanageably complex bursts (hence the need for insurance), and the latter, while a more regular expense – like a utility bill or, say, a paycheck – will drastically reduce the need for any of those huge and expensive encounters or at least catch them so soon that they are not nearly as costly, disruptive or deadly.

So, take the preventative care attitude towards fraud and set in place as many checks and balances as you can think of. It always pays to prevent fraud.

What checks and balances do you have in place?


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