Employee Fraud Awareness Training: Recruiting an Anti-Fraud Foot-Soldier Army

CFEs and management should recruit and train those who can fight fraud most effectively as employees.  

Since you're reading this issue of The White Paper, chances are you have at least a basic understanding of fraud and why it's important to prevent, deter, detect, and pursue. However, often the people that are in the best positions to fight fraud, those on the front lines of procurement, audit, payroll and accounting -- to name a few -- have little if any training in the basics, the key indicators of fraud, and the steps to take when they suspect it. Most employees want to help fight fraud and help root out wrongdoing but they don't have the right tools to do the job.

Contained here is a blueprint of a fraud awareness-training program for non-fraud investigators for increasing overall knowledge of fraud and encouraging employee reporting of potential wrongdoing to the CFE. This program can be adapted for use in public or private entities, colossal multi-national corporations, or small non-profits.

To increase fraud prevention, deterrence, and detection in any organization we must make anti-fraud foot soldiers out of as many employees as possible. More information reported to the CFE concerning indications of possible fraud can only increase the amount of fraud that will actually be uncovered.

Management Buy-in  

The crucial first step in this process is to meet with management, particularly procurement managers, to introduce the initiative, obtain their support, and provide them an overview of the training you'll provide. This accomplishes several important tasks because management can help you:

1) focus the details of your message (the specific fraud risks that have been identified by management; the fraud history of the organization, if any; and the types of fraud with which they are most concerned);
2) assist in identifying appropriate audiences and training opportunities for this education campaign (i.e., new employee training, mid-level procurement courses, annual training days); and
3) reaffirm their support and the corporate ethos that encourages proactively preventing and detecting fraud that affects the organization versus merely "wishing and hoping it doesn't happen to us."

Another great advantage to including management in the beginning stages of this process is that when you're conducting fraud awareness briefings to the line employees, you can emphasize that management has received the same training and they support the program. Employees are more apt to embrace their obligation to look for fraud when they know their management has already made this same commitment.

Audience  

After providing presentations, or at least a fraud awareness overview, to the appropriate levels of management, anyone in the organization that "touches" any aspect of the procurement or accounting process is an ideal audience for this training.

This list should include such people as:

• procurement officers/buyers;
• warehouse receiving clerks;
• accounts payable technicians;
• internal auditors;
• quality assurance personnel;
• ethics/compliance employees;
• property/asset management people; and
• security personnel.

The Message  

The four main ingredients to an effective fraud awareness-training program include:

• a definition of fraud;
• a discussion of fraud's effects on the organization and why the audience should be alert to its potential;
• typical fraud schemes, examples of how these schemes might actually appear in the workplace, and the key indicators that the scheme might be occurring; and
• necessary actions if fraud is suspected.

First Ingredient  

To define fraud as "intentional misrepresentation of a material fact to obtain something you are otherwise not entitled to" can make any audience comatose. A much smoother and effective definition centers on the "lying, cheating, and stealing" aspect of fraud. Everyone can relate to these basic human behaviors and every form of fraud involves some type of deceit.

It's helpful to discuss real examples of fraud from your organization's history, specific industry, or one of the many high-profile frauds that have been publicized in the mass media. Everyone can identify some type of fraud they have heard about from insider trading scandals to the Ford Pinto disaster or to tax evasion.

The entire goal is to make the audience realize that fraud manifests itself in a variety of ways -- wherever "lying, cheating, and stealing" occurs. It's also important to emphasize that aside from having serious ethics implications, fraud is illegal, and that criminal penalties can be brought against its perpetrators.

Second Ingredient  

Most people understand that fraud is "lying, cheating, and stealing" and therefore it's not a favorable activity. A discussion of the damages caused by fraud is a powerful hook to make the audience receptive to your message and actively involved in anti-fraud measures. Every dollar lost to fraud is a dollar that can be put to better use for the entity in additional marketing funds, more generous employee bonuses (most people relate to that potential), better office equipment, and increased earnings. In the worst-case scenario, fraud can also possibly lead to bankruptcy, lay-offs, or other painful cost-cutting measures.

An especially powerful message to communicate to employees is that they probably have professional relationships with fraudsters and don't know it. When a vendor double bills the organization for his services he is in essence lying to the accounts payable clerk and assuming that she isn't smart enough to catch his scheme. Nothing energizes people quite like telling them that someone might be lying to them and not respecting their intelligence.

Third Ingredient  

The centerpiece of this training is the actual fraud schemes and the indicators of these schemes. Many people don't realize the vast array of possible fraudulent transactions that corrupt vendors or employees could be committing. The purpose is to make people aware of the possibility of fraud in your entity so the schemes you select to highlight in your presentation should be tailored to the audience. The possibilities include internal frauds such as embezzlement, conflicts of interest and corruption, as well as external frauds such as cost mischarging and product substitution.

When describing a fraud scheme, you first need to define the basic concept in a simple format they can understand. Actual examples of the scheme show them what it "looks like." Give them a list of the typical indicators to help then find the fraud.

Tell them that fraud indicators are just that -- indicators. They don't prove that fraud is occurring or that anything is necessarily wrong. There can be logical explanations but they must scrutinize any circumstances that create indicators and, if appropriate, communicate them to the CFE and other company officials.

For example: if your organization is a manufacturer and your audience buys a great deal of raw materials for an assembly operation you might want to highlight product substitution schemes.

Following are examples of typical presentation slides describing product substitution and embezzlement schemes:

Try to relate potential schemes to actual examples of previous instances of fraud. For instance, when discussing embezzlement discuss the many examples of "nice co-workers" that have fleeced their employers by issuing themselves payroll checks for bogus employees.

Fourth Ingredient  

We've ensured that the audience understands what fraud is and why it's important to stop it. Now what? The final ingredient is to assign the audience two key tasks: be sure to be a professional skeptic, and communicate any fraud concerns to the CFE, management, auditors, and other concerned parties.

Professional skepticism means asking the same types of questions you'd ask if your own personal money was involved (which it is indirectly, actually). For instance, if an employee's assigned duties include inspecting an ongoing construction project to ensure the proper building materials are being used, he should tackle this task as if he were spending his own hard-earned cash to build his own house. If the materials used don't appear to comply with the contract (wrong size, wrong grade, etc.), the employee should ask questions until he's satisfied the materials are the correct items. The employee could request certifications from the builder, ask to see packing slips for the material, or ask an expert in this type of material to provide assistance.

Communication is the second major duty of our newly designated "fraud eyes and ears." Encourage the audience to discuss any fraud concerns with co-workers, management, auditors, and the CFE, or to call the organization's hot line. An obscure fraud indicator noted by a payroll employee could be a crucial piece of information to the CFE when linked together with other existing information. Fraud concerns cannot be over-communicated; in the worst case, the information will be filed and never used by the CFE. However, many instances of actual fraud leave a small trail of suspicious occurrences and curious onlookers who never speak up. Once the scheme is uncovered, many of those people will make statements such as "I thought something odd was happening." The goal is to encourage proactive discussion of fraud to detect it at its earliest stages.

Follow-up  

Keep an attendance roster with names and job titles of everyone who participates in these briefings to accomplish two important things: 1) People will be more apt to report suspicious fraud indicators if they know they've received this training and there's a paper document that proves this, and 2) It serves as an excellent reference tool for the CFE in future investigations or other proactive initiatives; those employees who actively participated in the fraud awareness briefings can be valuable to the CFE in the future.

Enlisting 'Deputy Fraud Examiners'  

CFEs cannot be everywhere all the time and most non-CFEs would probably agree that this would not be a good idea anyway! Therefore it only makes sense to ensure that all appropriate employees are educated about the basics of fraud, its appearance, how to recognize the indicators and what to do proactively to help stop it. An education program will help dramatically to multiply the number of people keeping an eye out for fraud, increase the effectiveness of the CFE's anti-fraud efforts, and help minimize the entity's long-term vulnerabilities to fraud.

Kenneth R. Dieffenbach, CFE, is a special agent in the U.S. Department of Justice Inspector General's Fraud Detection Office in Washington , D.C.