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Stopping Fraud Before It Starts

Written by advance on . Posted in Business Practices, Human Resources, Leadership, Strategy


Over the past few weeks, Aruba has been confronted again with new cases of fraud. Employees had found‘clever’ ways to embezzle their employers for tens and even hundreds of thousands of florins.

Business Impact

Fraud is big business. Companies are most at risk of fraud from their employees, since they have access to information and assets. On average, companies lose 5% to 6% of their revenues to internal fraud. This means that a company with sales of AWG 500.000 is likely to lose between AWG 25.000 to AWG 30.000 each year to employees with sticky fingers. In this age of shrinking profit margins 5% or 6% could mean the difference between being in the red or in the black.

All crime is a combination of motive and opportunity. The opportunity to commit fraud is typically addressed through internal controls—if the proper checks and balances exist, it is more difficult (though still not impossible) to defraud an organization. To deter opportunity, divide responsibility. If one person controls both the books and the assets, the ability to commit fraud is limited only by that person’s imagination. But if another employee shares a task, it is less likely a perpetrator can succeed. Furthermore, if an employee needs help to defraud an organization, opportunity is greatly reduced. It is one thing to commit a fraud by yourself, quite another to ask someone to aid in your scheme.

Common factors

When evaluating fraud cases, some of the following circumstances always seem present:

  • In 90% of the cases, there is active involvement of employees and many cases involve employees with many years of service and a high level of trust from management;
  • Fraud typically starts unplanned, but based on motive and opportunity, and develops overtime into something more elaborate;
  • Jobs are designed around people without proper separation of tasks and divided responsibilities, while Internal Control measures are weak and ‘custumber di trabou’ overshadows the formal rules and policies;
  • Management focuses too much on operational results and gives insufficient time or resources to internal systems and checks, while depending too much on external audits.


Regretfully internal fraud and theft are nothing new for Aruban organizations and it is likely to be on the rise as the overall economic and/or individual financial situations are deteriorating. Here are a few tips on how to prevent it.

  1.  Implement sound work processes, instructions and controls related top cash handling and ensure that all managers have a basic knowledge and understanding of the related administrative processes. The need for separation of tasks and divided responsibilities is key!
  2. Conduct regular spot-checks if procedures are followed.
  3. Avoid having the same person doing the same cash and cheque related transactions and administrative tasks every day. Set up a job rotation system among employees.
  4. Increase and maintain awareness of integrity among staff and managers by having them fill in yearly integrity checklist. It is important to ensure awareness about individual responsibility in observing fraud and take actions.
  5. Practice pre-employment screening. The best way to protect a company against internal fraud is by hiring the right employees. Companies need to have employees with appropriate backgrounds, as well as ones who fit with the company’s culture of integrity across the board. Verification of past employment and contact with references can yield valuable information. In addition, background checks can reveal information that may strongly suggest that a potential employee is not trustworthy.

Experience has taught that the human factor is the weakest link in the overall fraud and corruption control chain. Unfortunately the integrity of a person is not visible from the outside. Background checks are crucial when hiring new employees. In a recent recruitment assignment for administrative assistants, we found 40% of the potential candidates did not come clean through a reference check.

Hunting Down the Fraudsters

More and more companies these days are determined to go after fraudsters with trained investigators. Investigations serve two very important purposes. First, they send a message to other employees that the company is serious about finding fraud and doing something about it. Second, an investigation helps the company learn about the weaknesses exploited by dishonest employees. To cut fraud losses, it is recommended that companies invest in a comprehensive fraud prevention program. This will cost money up front, but that investment is easily recovered by a reduction in the company’s fraud risk.


In the first quarter of 2015, ADVANCE together with Compliance & Forensic Services Caribbean will organize a workshop about measures companies can take to prevent fraud. More information can be found on our website as early as January.

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