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Insiders Steal a Half. What are the Ways to Prevent it?

One of the most fundamental risks faced by any organization is the staff fraud. This problem is particularly acute within financial institutions.

News constantly report that officers of some financial organization steal deposits or issue loans on behalf of the customers behind their back. This situation occurs because of two simultaneous factors: a chance of committing a fraud and the staff’s intention to do so. In this article we are considering the ways of preventing from the staff frauds.

First of all, company owners are interested in the problem elimination.

If the staff fraud combating mechanisms have not been established from the business start, the resulting losses can be disastrous. Every day the problem scope will be extending. Sooner or later the naturally determined outcome will be faced, the company will be destroyed by fraud consequences.

The most recent studies show that over 50% of frauds in the EU companies were caused by the staff actions. For example, there are some of the most popular schemes used in the Ukrainian commercial banks:
1) A customer is refused a loan, and the bank officer takes a product or credit card himself;
2) A cash-keeper takes money from the store;
3) A transaction officer terminates the deposit agreement by himself and transfers costs to his/her account (and sometimes, for the customer not notice the money loss, he/she transfers money every month portion-wise as interest payments).

Specious primitiveness of fraudulent schemes cannot be relieving: should there be any staff conspiracy and an established system; the company may suffer big losses. Certainly, it’s the financial institution’s task to cover damages. If the guilty party is caught in a deception, he/she will be forced to return the stolen costs. However, as a rule, it takes a long time to arrange this return. In addition, the process of pursuing defrauders is a separate and considerable item of expense for financial institutions.

So what measures should be taken to overcome this problem? How can you prevent from specific cases of fraud, not to mention making it impossible to create a system of the staff frauds?

Task 1

First of all, you have to eliminate the slightest intention of the staff to be engaged in the fraud behaviour. From time to time, it is very useful to inform the staff with information on detected cases of fraud and measures taken against offenders. The staff should realize that any attempt to steal is inevitably followed by an immediate punishment imposed by managers.

Task 2

You need to establish operational processes in a way that all chances of staff frauds are removed. Supervision, feedback, and IT systems to fix staff actions are indispensable attributes of the effective financial institution.

In any case, when establishing relationships with your staff, you should keep in mind the famous catchphrase by Ronald Reagan: “Trust, but verify”.

In addition, you need to remember that managers of many organizations actually provoke their employees by creating conditions for fraud. Our next publication will highlight this issue.