How Can Directors Discourage & Prevent Fraud?

Posted By: Team Moody,

As defined by MD D&O Insurance, the term “fraud” refers to intentionally deceptive or wrongful actions done for personal or financial reasons. It comes in many forms, including:

  • Consumer fraud
  • Employee fraud
  • Business or government institution directed fraud

Unfortunately, fraud can occur in any workplace, and it isn’t always easy to detect. Often, it can be just as difficult to remedy the resulting damage.

However, there are ways to keep these incidents from happening in the first place or at least make it more difficult for fraudsters to carry out their activities. Some of the strategies that company directors could implement are:

  • Instituting internal control measures, including audits, close supervision, and effective password use
  • Educating personnel on the risks of suspicious digital communications
  • Installing security software
  • Discouraging the sharing of personal details and confidential information, especially with unknown individuals
  • Establishing company-wide anti-fraud policies
  • Familiarization and monitoring of employee activities

By taking these measures, company directors could reduce the chances of fraud occurring.

What factors contribute to fraud?

Some workers will commit fraud regardless of the working conditions or the corporate environment they work in. But certain factors could make fraud easier to carry out or make a company more likely to be victimized. Some examples include:

  • Inadequate control or monitoring of company procedures
  • Careless or improper accounting and auditing
  • Inefficient direction
  • Overly complex organizational systems
  • Unsatisfactory working conditions

Detailed strategies for preventing fraud

Here are the key steps for preventing fraud from occurring. Although these are typically tasks that company directors should do, they can be performed by anyone in a supervisory or administrative role.

  1. Get to know your company’s employees. Many fraudsters give away their intentions by their actions and behavior. You can learn a lot about your employees by observing them closely and paying attention to what they say. It is also a good idea to establish a close professional relationship with your workers to get a feel for sentiments that could foster fraudulent plans or actions.
  2. Establish a fraud reporting system. Make it easier for your workers to report fraud or actions, speech, or sentiments that could lead to these incidents. You could set up an anonymous reporting system, for example, or encourage employees to approach HR personnel when they suspect that something is amiss. Make it clear that any information shared will be strictly confidential and that they won’t face recriminations because of anything they divulge.
  3. Set up internal control mechanisms. Internal controls can be beneficial for discouraging and preventing fraud. These typically consist of plans and programs that help ensure more accurate and verifiable accounting records. Properly implemented, these plans can safeguard assets by making it easier to detect and prevent fraudulent activity.

Some of the most effective internal control mechanisms you could implement are efficiently segregating duties and performing accurate documentation. But even with such systems in place, it is essential to periodically monitor and revise strategies to remain on top of technological loopholes that fraudsters may use to their advantage.

  1. Monitor employee activities. As a director, you need to keep track of employee activities that could indicate potential fraud. Some workers may take more unscheduled breaks than usual, for instance. Conversely, others may rarely take breaks to draw away suspicion.

You should also consider rotating workers between different departments if practical. This could make it more difficult for errant employees to keep their illegal activities from being detected. It also gives replacement workers opportunities to examine and assess the actions of their predecessors.

  1. Enlist outside help. In some cases, illegal activities can be so ingrained in a company’s operations that they can be difficult to uncover. If that is the case, it might be beneficial to enlist outside professionals who are trained and qualified to detect and deal with fraud in the workplace. Among the third-party personnel who could help are:
  • Certified Fraud Examiners (CFEs)
  • Certified Public Accountants (CPAs)
  • CPAs with training and certification in fraud forensics (CFF)

Most of these specialists have thorough training and real-world experience with anti-fraud strategies and policies. Although you will have to pay for these services, the expertise and objectivity they bring to the table can be invaluable for detecting and preventing fraud within your organization.

  1. Improve the company culture. Certain workplace conditions could make fraud easier to carry out or encourage criminally inclined workers to commit illegal activities. Improving company culture could go a long way in reducing the risk of fraud, with strategies such as clarifying and simplifying the organizational structure, establishing clear-cut policies and procedures, and implementing equal employment practices. As the company director, it is your responsibility to lead by example and hold everyone to the same standards regardless of rank or position.


It can be challenging to detect and prevent fraud in the workplace and even more difficult to reverse the damage it causes. However, following the tips outlined above could prevent these incidents and make it less likely for would-be fraudsters to carry out their criminal activities.

About Moody Insurance Worldwide

Moody Insurance Worldwide, a division of Moody & Associates that was founded in 1914, is a leading provider of risk management programs and insurance coverage to individuals and businesses across the East Coast. We write all sizes of businesses, with technical expertise in many key industry areas, and provide personal insurance programs for estates and high net worth individuals. Our licensed, experienced commercial account managers can work with you to determine the coverage that you need at a competitive rate. Contact us today at (855) 868-0170 to learn more about what we can do for you.