Preventing Fraud: Chapter 4

Building a Culture of Honesty and Openness

David Miller: Hey everyone, welcome back to Fraud Examination. I’m David Miller, here again with Maya Collins. Today we’re diving into something we touched on in earlier episodes—the big picture of preventing fraud before it even starts. So Maya, you remember that example we talked about—the trusted bank employee? The one with the spotless record who ended up embezzling over $600,000 just a few years before retirement?

Maya Collins: Oh, yeah, I do. That case really stuck with me. I mean, this person was the last one you'd suspect, right? But I guess that’s the thing—if the environment or controls are weak, pretty much anyone could cross the line. And in that situation, the fallout was brutal. The employee lost pretty much everything, including their home and savings, not to mention serving prison time. The bank itself never recovered the losses or its reputation in the community.

David Miller: Exactly. The research is pretty clear: almost anyone can end up dishonest if the pressures or temptations get high enough. It's not just about hiring "good people" and hoping for the best. You've gotta intentionally create a low-fraud environment, and there’s a few big steps for that—first off, hire honest folks in the first place, sure. But you also need real fraud awareness training, a positive and open work environment, and, something I think gets overlooked, solid employee assistance programs. These tools help people deal with pressures that might otherwise push them over the edge.

Maya Collins: Totally agree. And, you know, I actually saw this in action early on in my career. My team had a strict open-door policy, and I know it sounds cliché but it made a real difference. I remember one colleague—let’s call her Jane—who noticed weird payroll changes popping up. Instead of brushing it off, she popped into our manager’s office and asked about it, no drama. Because she felt comfortable reporting it, we caught a potential payroll scam before it could do any real harm. I mean, that kind of openness—plus making sure people know how to act if something looks off—really shuts a lot of fraud attempts down before they start.

David Miller: That’s a great point. And when people know they’ve got genuine support—whether it’s just being able to talk or through something like an employee assistance program—they’re less likely to rationalize bad choices. Sometimes folks are under tons of pressure at home, and having somewhere to turn can keep them from making desperate decisions.

Maya Collins: For sure. It also helps if the whole company is on the same page with expectations—that “everyone’s a little dishonest” mindset just can’t fly. You need a good code of conduct, clear communication, and a tone from the top that fraud, no matter how small, just isn’t acceptable. If people think the boss doesn’t care, well, you know how slippery that slope is.

Rigorous Hiring and Effective Controls

Maya Collins: Now, building on that, I wanna talk about hiring—because honestly, it’s wild how much fraud starts with weak hiring practices. Did you know that something like 55% of Americans admit to lying on a resume at least once? And around a quarter of workplace fraud is by folks who've been at the company less than three years. Makes you think twice about skimming through resumes too quickly, right?

David Miller: Oh, I’ve seen it plenty of times. People fudge job titles, exaggerate skills—heck, even fake degrees. The most common lies are about prior work experience and skills, but it goes all the way down to salaries or even employer references. That’s why you can't just take an application at face value. You need to verify everything—especially for positions of trust.

Maya Collins: And it’s not just about catching fibs—it’s about reducing your liability, too. If you hire someone who then pulls off a scam, and you didn’t do your due diligence, the company could be on the hook for negligent hiring. That means actually checking references, running proper background and credit checks—at least for financial positions—and making sure all that stuff is job-related and above board.

David Miller: Absolutely, and don’t forget, every applicant should certify that their application is accurate. That act alone can deter a lot of dishonest folks, since they know they can be let go if you catch them later—no matter how much they shine after being hired. But the system can still fall apart if your hiring managers aren’t trained to spot red flags or ask the right questions.

Maya Collins: You got a war story for us, David?

David Miller: Unfortunately, yeah—and it’s one I wish I didn’t. Years ago, at a place I worked, we skipped some of those steps while hiring an accounting clerk. On paper, she looked great—and seemed perfectly pleasant. But over the years, she siphoned off small amounts—just enough to stay under the radar. By the time someone pieced it together, we realized she’d been stealing for years. If we’d just verified everything right from the start, and kept our internal controls tight, we could’ve saved a bundle and a lot of embarrassment.So, it’s not one or the other—you need both: honest hires and effective controls, or the whole thing just doesn’t work.

Maya Collins: And once new hires show up, don’t just toss them into the deep end. It’s so important to actually train people about company values, what fraud looks like, what it actually costs everyone, and what to do if they see something wrong. That awareness piece goes a long way. It’s kind of amazing how much fraud you can prevent when you catch people right at onboarding.

Proactive Detection and Deterrence

David Miller: Let’s shift gears a bit—’cause even with all that in place, you still gotta watch for fraud actively. There are five main tools for cutting down opportunities: first, solid internal controls; second, discouraging collusion; third, effective monitoring—including things like hotlines; fourth, making it crystal clear that fraud will be punished; and fifth, proactive auditing for fraud.

Maya Collins: Let’s break those down a little. Internal controls are about good accounting systems, segregation of duties, having the right authorizations, and keeping tabs with independent checks. Preventive controls—like, say, not letting the same person both order and pay for supplies—are huge. Detective controls, like reconciliations or audits, catch things if they slip by. But—and we’ve talked about this before—collusion is always a blind spot. Most of the huge losses involve more than one person working together, sometimes with outside vendors or customers.

David Miller: Yeah, and it's tough to tackle, ’cause those frauds develop slow and can be hidden really well. Mailing out “right-to-audit” letters to vendors, letting them know you might look at their books? That works way better than you’d expect. And for monitoring, you’d think fancy tech does it all, but tips—like, anonymous employee hotlines—are still the number-one way fraud gets found.

Maya Collins: It’s funny, the effectiveness of a hotline is, like, all about trust and anonymity. People need to feel safe to share what they’re seeing, so make it clear the tipster will be protected, and that there are follow-ups. Independence helps a lot too—having an outside channel to report to, so you’re not just sending whispers up the chain.

David Miller: And whenever you publicize punishment for fraud—not just firing someone, but really making it clear you’ll prosecute—you send a strong message. That’s a real deterrent, way more than just saying “don’t do it.” If folks think nothing serious happens, word gets out, and fraud can get basically normalized.

Maya Collins: Gotta say, proactive fraud auditing is kinda underrated too. Instead of just looking back after something goes wrong, you need audits that actually dig for symptoms and red flags—so you’re always a step ahead.You wanna get into Company Q, David? That’s a textbook what-not-to-do.

David Miller: Oh, Company Q! Right, so they realized one day that, oops, 10% of their revenue vanished to employee fraud because they had zero reporting or prevention in place. No hotlines, no open-door, nothing. Their prevention should have started with management—setting the right tone—and for detection, honestly, partnering with an external organization to run the anonymous hotline would’ve been a game-changer.

Maya Collins: And it matters which department does what. Prevention usually belongs to upper management—since they set the ethical tone. Detection? That can be a professional org outside the company, like running that hotline, or bringing in external auditors to keep things honest. If you set this stuff up, you don’t end up stuck in that endless cycle of react, repair, repeat that so many companies fall into.

David Miller: Exactly. If you remember from last episode, a comprehensive approach—prevention, detection, and education—always beats just reacting after the fact. And the real takeaway here? Every company will deal with some fraud, but how much depends on proactive work: education, solid controls, good audits, and quick action when problems crop up.

Maya Collins: That's a wrap for us today! Next time, we'll dig into fraud investigation steps—what really works and what usually gets missed. David, as always, this was a blast.

David Miller: Likewise, Maya. Thanks for listening, everyone, and we'll see you in the next episode. Stay sharp out there!