Don’t just put the fire out; stop it from igniting in the first place.

The word “fraud” tends to make business owners shudder with apprehension, and while that reaction is entirely justified, it is not necessary. Workplace fraud is a serious issue, but it is also a seriously preventable issue.

With the influx of new technology in recent years, it has become much easier for employees to engage in fraud schemes; however, fraud commitment and fraud prevention in the modern era are just two sides of the same coin. The advancement of technology has also made it easier to identify and even prevent fraud in the first place. If you are concerned that it might be occurring in your office, you should look for red flags that point to fraudulent activity; on the flip side, if you are running your small business and just want to take the best precautions to avert any misconduct in your company, then you are in the right place.

Fraud can be minuscule, or it can be devastating; the Association of Certified Fraud Examiners concluded that organizations lose about 5% of their annual revenue to fraud. Save that 5% by implementing the most effective measures to ward off any potential schemers:

• SET THE TONE. One of the best ways to cultivate a positive atmosphere and communicate your expectations is by creating a written code of ethics. When you hire new recruits, your company’s code of ethics is one of the first things you should show them; doing so conveys not only what you would like to see from those employees but also what would happen should they violate any of your company’s standards.
• MAKE CONSEQUENCES KNOWN. On that note, it is essential that you reinforce the consequences of fraudulent behavior. You may want to incorporate this into your code of ethics, but you can also create a separate fraud policy that outlines what actions constitute as fraud and the consequences (re: punishments, probably) for anybody who commits such acts. Educating employees on workplace fraud and its repercussions is one of the first (and most important) steps to squandering any scandals.
• RAISE AWARENESS. This, of course, goes hand-in-hand with the prior two prevention methods, but you do not only have to raise awareness through written standards and policies. Regularly communicate with your employees about this matter and make your stance on fraud clear. People are more likely to partake in suspicious activity if they believe they will not be caught; if you reinforce the fact that you are on the lookout for such behavior, they will be a lot less likely to attempt anything.
• SEGREGATE TASKS. Control deficiencies are practically the gateway to scandals. If an employee is left without supervision, the chances of him or her committing fraud become exponentially greater. That is why it is critical that you delegate tasks between multiple employees. While it might seem backward (“There are more people handling the money, so wouldn’t it be more difficult to identify the thief?” you might ask), if employees are being supervised by one another, it would be easier to detect when something goes awry and even easier to figure out who caused it.
• MAKE VACATIONS MANDATORY. Weird, right? Consider this: you have a stellar employee who never misses a day of work. He comes in early every morning, leaves late in the evenings, and always seems to be on his A-game. Truth be told, he is too paranoid to miss a day of work because he worries that somebody will be able to find out that he has been embezzling funds from the company. If you make vacation time mandatory, it becomes much easier to identify fraud and scare off any prospective perps.
• TAKE ADVANTAGE OF SPONTANEITY. If you have regularly scheduled audits, an employee committing fraud within your company has all the time in the world to prepare. However, spontaneous audits will take scammers by surprise. Everybody in your company will know that there are random audits, but they will never know when they are–so kiss fraud goodbye. Most people will weigh their options and, unsurprisingly, determine that it is not worth the risk.
• UPDATE SYSTEMS AND SECURITY. I mentioned before that the advancement of technology makes committing fraud easier, but a lack of up-to-date software and security measures is the perfect avenue for somebody to put a scheme into motion. Aside from updating your software, make sure that you teach your employees how to detect and prevent fraud. Employee tips are the most common way that companies catch fraud, so educating your team might even help to prevent it in the first place.
• SHOW YOU CARE. Fostering trusting, welcoming relationships with your employees is one of the best ways to prevent fraud. If an employee feels comfortable with you, there are more likely to approach you to resolve any issues or express any concerns, and then you can work together to figure out a solution. A happy employee probably will not do anything to hurt the company; the most likely suspects are those who are displeased or desperate. Not only will getting to know your employees improve your team’s overall collaboration skills, but you will also be able to notice if anybody displays suspicious behavior more easily.

Fraud is no joke, and when you and your company become the victims, it becomes that much more frightening. Take the measures you need to ensure that not only will you be able to catch any fraudulent activity occurring within your office, but you will also be able to nip it in the bud before it can cause any damage (or just wholly prevent it in the first place!).