Four ways to prevent employee fraud
Organizational norms shape how people behave, and unethical conduct often spreads quickly when it begins at the top. In many cases, internal fraud grows out of environments where expectations are unclear, boundaries are loose, or senior leaders model the wrong behavior. This makes the first step in any organization’s fight against fraud the creation of a strong, ethical culture.
A formal fraud policy is the foundation of that culture. Although policies differ across organizations, they typically outline what activities are considered fraudulent and make it clear that all appropriate measures will be taken to deter wrongdoing. They confirm that every suspected incident will be investigated and reported to the relevant authorities and direct all employees to report concerns. A strong policy also provides clear, formal procedures to follow when fraud is suspected or discovered. It sets out how to deal with the individuals involved, how evidence should be collected and preserved, and how communication with stakeholders and, when necessary, the media should be handled.
Once in place, the policy must be communicated to all staff and implemented consistently. It should also be reviewed at board level according to the organization’s internal norms for policy renewal, reinforcing that fraud prevention is a leadership responsibility and not a one time exercise.
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Managing internal fraud: Four tactics
The risk of internal fraud can never be eliminated entirely, but it can be managed effectively. The following four tactics play a central role.
1 Train your employees
Regular, organization-wide training is one of the most effective defenses against internal fraud. It ensures employees understand exactly what fraud looks like in practice, rather than assuming they’ll recognize it when it happens. This clarity matters because many cases stem from misunderstandings, rationalizations, or small breaches that escalate over time.
Training should reinforce the real costs of fraud to the organization, from financial losses and reputational damage to disrupted operations, reduced morale, and even job losses. When people understand the broader impact, they’re less likely to ignore warning signs or assume someone else will deal with them.
It should also make the personal consequences unambiguous. Employees need to know that committing or facilitating fraud can lead to serious penalties, including imprisonment. This removes any perception that misconduct is low risk or easily overlooked.
Finally, training sets expectations for conduct. It’s an opportunity to communicate a zero-tolerance stance and promote a genuine speak-up culture, giving employees the confidence to raise concerns before issues grow.
2 Be proactive
A proactive approach to detecting internal fraud reduces the chances of issues going unnoticed and helps identify problems before they escalate. This starts with continuous monitoring software that can flag unusual patterns or behaviors in real time, giving organizations a consistent view of potential red flags.
Proactivity also means relying on more than predictable audit cycles. Regularly scheduled audits remain important, but they should be complemented with surprise fraud audits that limit the opportunity for employees to conceal improper activity. The element of unpredictability reinforces that controls are active, not symbolic.
Routine account audits are another key part of this approach. Reviewing accounts on a consistent basis and in line with established accounting and auditing standards ensures that irregularities are spotted early and handled appropriately.
3 Implement a fraud risk management framework
Because fraud risks are constantly evolving, organizations need a structured fraud risk management framework that keeps pace. A clear framework helps identify and assess potential vulnerabilities so teams understand where risks are most likely to emerge and which areas require the greatest attention.
Once risks are identified, the framework guides how they are managed and mitigated. This ensures controls are applied consistently rather than reactively and that decisions are based on a clear understanding of exposure.
An effective framework also supports ongoing monitoring and regular reporting. This keeps leadership informed, maintains accountability across the organization, and ensures fraud risks are tracked rather than treated as one-off assessments.
4 Implement controls
Simple but well designed controls can significantly reduce the risk of internal fraud. They create clear boundaries around who is responsible for what, limit opportunities for misconduct, and ensure that important processes never depend on a single individual.
A key example is segregation of duties. In banks and other financial institutions, separating front office activities from back office responsibilities is essential. Several high profile rogue trading incidents occurred because the same individual could both execute trades and control the related operational processes. Once responsibilities are divided, it becomes far more difficult for fraud to go undetected.
There are several other practical controls that strengthen fraud prevention. Organizations can require two people to sign off on every transaction and restrict sensitive information so that only those who need it for their job can access or modify it. Job roles should specify the level of access each employee has, and IT systems must enforce those permissions reliably. System controls should also ensure that employee login credentials are changed on a regular basis.
Vacation policies play a role as well. Requiring employees to take their full allocation of vacation days, including a continuous block such as two weeks during which another person performs their duties, can reveal irregularities that might otherwise go unnoticed.
Background checks are another important safeguard. All new employees and contractors should be screened, and anyone who will have access to the organization’s funds, IT systems, or confidential information should undergo more detailed vetting.
With the right culture, oversight, and controls in place, organizations can significantly reduce the likelihood and impact of internal fraud.
The content for this article is taken directly from Intuition Know-How‘s Fraud 2025 tutorial.
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