Don’t be a victim: How to empower your employees to identify and report fraud

Our fraud experts recently provided a fraud awareness training during which an employee in the company’s accounting department recognized several of the red flags we presented. After the training, the employee felt empowered to report the issues to management. Many of the allegations were confirmed, upon thorough investigation, including problematic relationships between employees and vendors along with duplicative and personal expense reimbursements. More than five employees were found to have performed the problematic transactions, incurring a six-figure loss for the organization.

All organizations across all industries face fraud risk, and it can be costly. According to the 2024 Association of Fraud Examiners (ACFE) Report to the Nations, the median loss due to fraud is $145,000, and fraud is estimated to impact about 5% of revenues annually. This doesn’t include reputational damage that results from fraud, which can cost an organization far more. Comprehensive fraud awareness training to identify and detect the signs of fraud and mitigate fraud risk are critical for organizations and should be an important focus of your employee development and risk management programs.

Employee tips: A valuable internal control for reducing fraud risk

According to the ACFE’s study, the most common way organizations detect fraud is through tips, more than half of which come from employees. In other words, employees can be one of your organization’s best resources for fraud prevention. Training your staff on how to identify and report red flags is a great tool to strengthen these resources.

Does your organization offer fraud awareness training?

Employees play such a major role in fraud prevention that the ACFE has identified fraud training for employees as a top-five internal control for reducing fraud risk and losses, resulting in a reduction of nearly half the median losses, according to survey findings. 

Fraud training also sets the tone at the top, letting everyone know that fraud awareness is a priority for the organization. Nearly two-thirds of organizations provide some level of fraud awareness training to their employees.

Take a minute to self-reflect. Does your organization offer fraud awareness training? If not, why? Is it a culture issue? Is it because of time constraints? Is it due to financial reasons, such as lack of budget or perceived return on investment? It’s important to understand the reasons, because organizations that don’t offer this training are lacking an important internal control and possibly letting fraud go undetected.

If you do offer training, is it mandatory? Is the training effective? If you think it’s effective, how do you know? Have you seen an increase in tips submitted to your whistleblower hotline? Do you collect and evaluate training feedback from your staff on an ongoing basis to gauge the effectiveness? Below, we share our tips on what makes a fraud awareness training effective.

Elements of effective fraud awareness training

Having provided countless trainings, we find that effective fraud awareness trainings include several key aspects:

• Case studies from actual frauds the trainers have investigated in your organization’s industry, rather than theoretical or widely known (and decades-old) examples of frauds such as Enron or the City of Dixon, Ill., so attendees learn what happens in applicable real-world situations.
• Interactive exercises and engaging training approaches, such as asking participants to “find the fraud” when presented with shell companies, ghost employees, fake invoices, inflated expense reimbursement submissions, and similar schemes.
• Continuous updates to training case studies and materials as fraud schemes evolve.
• Content on current fraud trends and common internal controls that can reduce the risk for fraud.
• Identification of current reporting mechanisms your organization has in place and educating and refreshing staff on how to leverage those mechanisms.
• Reacquaint employees with your organization’s employment policies relating to fraud awareness and reporting. While there are definitive rules for whether something is legal, the determination of whether it’s problematic by the organization may differ based upon your industry and the company’s specific policies.
• Use of analytics, and demonstrations for staff, to identify patterns and red flags in data using technology your organization already has, including commonly used software such as Microsoft Excel.
• Digital files and workbooks with formulas, analyses, and visualizations to make it easy for your staff to apply lessons learned to their everyday roles.
• Leveraging the expertise of forensic accounting specialists whose practices are solely devoted to fraud prevention and detection.

Fraud awareness training ROI and next steps

Employee fraud happens more frequently than reported. The most recent ACFE study found that more than 40% of frauds weren’t reported to the police, meaning the occurrences weren’t publicized. Don’t let your organization fall prey. Take steps now to mitigate fraud risk:

• Identify your existing fraud awareness training offerings, if any.
• If you’re offering fraud awareness training, evaluate whether it’s effective reviewing submissions to your whistleblower hotline or evaluating feedback from participants.
• Ask yourself this: Are you sure your employees know how to spot fraud — and how to report it?

The risk reduction benefits from providing effective fraud training to your employees, including managers and executives, outweigh the related investment. As part of your organization’s overarching risk management program, brainstorm how to add or strengthen fraud awareness training in your employee development initiatives.