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8 Strategies to Enable Better Fraud Detection

Thankfully, learning how to detect fraud can help businesses prevent heavy losses. This post provides fraud prevention and detection techniques you can use to protect your business against internal and external threats.

Understanding the Types of Business Fraud

Business fraud can take many forms, from tampering with your administrative systems to altering checks. Knowing the different ways fraud can happen can help you determine the best way to deal with it within your organization.

Payroll Fraud

Payroll fraud occurs when someone tampers with your company’s payroll software to send fraudulent payments to themselves or another person. The most common forms of payroll fraud include:

  1. Falsifying timesheets to pay an individual more money than they have earned.

  2. Sending payments to fake employees or former workers.

  3. Issuing illegitimate bonuses.

The most common suspect is someone in your payroll department. However, perpetrators can also come from another department or outside your organization.

Since payroll fraud is typically a digital crime today, powerful cybersecurity measures are usually the most effective way to prevent it.

Accounting Fraud

Accounting fraud, sometimes called financial statement fraud, occurs when an individual within an organization deliberately manipulates financial records. This manipulation makes it appear as if they earn and have more money than they do, making their liabilities, debts and losses seem smaller by comparison.

People usually commit accounting fraud to gain financial assistance like loans. When they’re successful, they can pocket the money or bring in extra funds for their business. Although this type of fraud is the least common in the business world, it is the most costly.

Asset Misappropriation

Asset misappropriation is the most common type of internal fraud, with instances of asset misappropriation accounting for 86% of occupational fraud cases in 2021. It’s also one of the easiest ways to commit fraud and can take the form of either cash or non-cash misappropriation.

When an employee steals money from a company, they are committing cash misappropriation. They may commit this theft by taking funds from the organization’s bank accounts, making unauthorized payments on company credit cards or simply stealing cash from a safe.

Fraudulent disbursements, or unauthorized payments, are a large subset of cash misappropriation. In 2020, check tampering was the leading method for these disbursements, accounting for 66% of all fraudulent payments. Check tampering can occur in one of three ways:

  1. Authorized maker: Your authorized maker is responsible for creating and signing checks for your company. The easiest way for an authorized maker to commit fraud is to make a check payable to themselves or a partner, then change the payee’s name in the accounting records. Their access to these records and position of trust within the company makes it simple to make the check look like a legitimate payment.

  2. Forged checks: An employee forging a check will make themselves or a partner the payee and forge the authorized maker’s signature. If you suspect someone has forged a check, look for cashed or deposited checks that don’t appear in your system.

  3. Altered checks: Altered checks happen when an individual intercepts a legitimate check and changes the payee or the amount to be paid. It’s usually easy to tell when someone has altered a check. When an authorized maker makes an error on a check, they typically note it and use a fresh check rather than attempting to erase and write over the original fields.

An employee who commits non-cash misappropriation takes non-money assets without authorization. These assets might include important inventory, equipment or office supplies.

Identity Theft

Identity theft is a complex type of fraud. A person committing identity theft uses someone else’s personal information — like their Social Security number or credit card information — to take their money. It’s an especially dangerous type of fraud because anyone can fall prey to it, including businesses, customers and employees.

Employees who gain access to a customer’s banking information might use it to make unauthorized payments. Companies can also commit identity theft against other companies by stealing information from a business-to-business interaction.


Corruption is an umbrella term that covers any time someone in a position of power deliberately tampers with funds or participates in dishonest financial behaviors. Various types of business fraud fall into this category, including:

  1. Money laundering.

  2. Accepting bribes.

  3. Failure to report business transactions.

  4. Doing business with criminals.

  5. Manipulating public elections.

8 Fraud Prevention Techniques

Understanding the different types of business fraud is only half the battle. Once you know what to look for, you need to enact protocols to help prevent it.

1. Begin With Fraud Risk Assessment

Performing a thorough risk assessment is the first step in creating your fraud prevention strategy. Each company faces varying risks based on its circumstances, including their:

  1. Organizational complexity and scale.

  2. Products and services.

  3. Market exposure.

  4. Employee interaction and access.

Work with an internal auditor to analyze your organization’s vulnerabilities. They will help you determine your risk-tolerance limit, or the maximum amount your organization is willing to lose to fraud.

Knowing your risk-tolerance limit provides a baseline to build your strategy around. Focus primarily on risks that exceed your limit, as these will do the most damage to your business.

2. Establish a Clear Fraud Risk Governance Plan

Now that you know your risk limits, position fraud management as a key part of your company culture. Encouraging buy-in from stakeholders and employees will make it significantly easier to implement new procedures.

An effective management strategy includes:

  1. Well-documented policies and procedures for whistleblowing and reporting.

  2. Fraud awareness techniques and resources.

  3. Clearly defined roles and responsibilities.

  4. Anti-fraud techniques and resources.

  5. Internal auditing and quality control measures.

  6. Straightforward requirements for education and enforcement.

  7. A coherent description of the investigation process and consequences.

Be sure to thoroughly document all parts of your strategy and make them accessible to all organization members regardless of level.

It’s also a good idea to designate a leader or committee to run the entire program. Choose someone who can handle everything from training to monitoring and tweaking the program as necessary.

3. Create Whistleblower and Reporting Procedures

According to the ACFE, insider tips are the most common method of fraud detection — in their most recent study, tips initiated 42% of cases. Of those tips, more than half came from employees, about one-third came from external sources and 16% came from anonymous sources.

Ensure your whistleblower policy includes information on:

  1. How to report: It’s essential to provide multiple reporting avenues to make it easy for employees to come forward. An open-door policy provides employees with a safe way to speak to management directly. You can also create an anonymous tip line using a web portal or phone line. While tips submitted over the phone have declined in recent years, web-based reporting through email and online forms has increased dramatically.

  2. Reporting to non-employees: Many employees are more likely to report suspicious activity to non-employees like board members, attorneys or auditors. Opening access to these individuals makes it more likely that an employee will come forward.

  3. Anonymous reporting: Employees often hesitate to make a report for fear of retaliation. A secure, anonymous tip line can dramatically improve your organization’s chances of mitigating fraud risks.

  4. What to report: Ensure employees know what information they should include in their report. If you use an online form, you can make this process easy by creating specific question prompts. Important information includes the date of the crime, which departments were affected, who was involved, the employee’s reason for concern and how they learned about the situation.

  5. Protections: Clearly outline the steps your organization will take to protect the informant from potential retaliation. Knowing that they will be safe makes employees more likely to speak up when they have information.

  6. Investigation procedures: Outline how your organization will follow up on a tip. Define at what point law enforcement would need to become involved.

Ensure that this policy is accessible to everyone in your organization. You can include a copy of the policy in new hire packets and employee handbooks. Posting it in common spaces like break rooms and company bulletin boards also helps keep it at the front of people’s minds.

4. Hire the Right People

Many of the people who work for your company play important roles in creating effective anti-fraud procedures. You may choose to hire a certified fraud examiner or certified public accountant with a certification in fraud forensics.

Employees with a background in fraud investigation can provide counsel on how to detect risks and how to deal with fraud if it happens. However, you should always ensure that the people you hire will be assets to your company rather than potential hazards. Anyone with access to financial information must be someone you can trust to provide quality service while maintaining confidentiality.

5. Know Your Employees

Often, the perpetrator is the employee you’d least expect to commit fraud. That’s why it’s so critical to get to know your team. Once you know who you’re working with, it’s easier to spot changes in attitude and behavior that can be signs of potential risks.

Listening to your employees can also reveal internal issues that you need to address. For example, an employee may feel slighted after not receiving a promotion they thought they deserved. Engaging this employee in conversation might reveal that they’re struggling financially, increasing their potential fraud risk.

Perpetrators are usually motivated by one or more of these three factors, also known as the Fraud Triangle:

  1. Opportunity: The perpetrator is aware of a vulnerability in the system that gives them the chance to get away with fraud.

  2. Pressure: The perpetrator is experiencing some sort of pressure in their life. For example, an employee might be living beyond their means and struggling to keep up.

  3. Rationalization: The perpetrator finds some way to justify their actions. They may tell themselves they deserve the money or that they’re only borrowing it until they can take care of their debt. While they may think their theft will go unnoticed, an institution with the proper prevention measures in place should be able to notice right away.

In addition to observing and listening to your staff, providing a positive work environment can play a significant role in preventing fraud. Establish a clear structure within your organization with well-documented policies and procedures.

6. Train Your Employees

Once you have an effective risk policy and reporting procedures, your next step is to provide anti-fraud training for your employees. Everyone within your organization needs to understand the policies and the consequences of committing fraud. The simple knowledge that their actions are under surveillance will be an effective deterrent for many.

Training also plays a role in fraud detection. According to the ACFE, employees who receive the proper training are significantly more likely to follow through in reporting suspicious activity than employees without training.

7. Implement Fraud Detection Tools

The business case for investing in anti-fraud technology goes beyond simply protecting your organization from financial harm.

Ultimately, the best fraud prevention solution for your organization is one that will streamline your anti-fraud strategy. Features like customizable workflows and mobile accessibility allow investigators to optimize their processes, saving valuable time and energy.

The software you choose can also serve as a deterrent for potential insider attacks. Ensure your detection methods are visible to your staff, so they know they’re under surveillance. Update your software frequently to maintain its effectiveness.

Additionally, be sure to document any updates regarding your anti-fraud technology. Having this information on hand can help you keep track of patterns that might suggest fraud attempts.

8. Invest in Case Management

Case management software lets you detect fraud and manage open cases with unparalleled efficiency. By automating rote processes and centralizing data, investigators can focus their full attention on closing each case quickly.

Top case management solutions offer:

  1. Built-in analytic tools to help you visualize connections between data points.

  2. Automatic graph generation to create effective presentations for stakeholders.

  3. A public web portal that allows you to receive and manage tips from internal and external sources.

  4. Collaborative tools that enable you to work together with colleagues seamlessly.

  5. Open-source intelligence tools that make it easy to search hundreds of sources across the dark web, the deep web and various social networks.

Kaseware’s all-in-one case management solution streamlines fraud investigations by eliminating the need for multiple software programs. All your case files are in one place, letting you access important data from anywhere.

Prevent Corporate Fraud With Kaseware

We designed our cybercrime case management platform to make investigators’ jobs easier. It’s comprehensive and fully cloud-based, eliminating the need for multiple programs and letting you consolidate all your files, evidence and operations in one online location. With Kaseware, you can easily and securely collaborate across departments, agencies and even organizations in ways that once seemed impossible.

Using our system, you can efficiently gather and analyze large volumes of data while identifying significant connections between entities, such as suspects, web pages and transactions.

Schedule a free, personalized demo today to learn more about us, our support offerings and our incredible product features.


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