You can use the camera effect to kill fraud. Today I tell you what the camera effect is and how you can use it to reduce theft.
People are more prone to steal if they think no one is looking. But the camera effect is a powerful deterrent. So what is it? When others see the actions of an employee, he changes positively.
43% of fraud detection comes by way of tips. This is why whistleblower programs are the number one way to reduce theft. Time and time again, the Association of Certified Fraud Examiners’ surveys show that whistleblower programs lessen the number of and dollar amount of frauds. Employers provide 1-800 numbers whereby employees can anonymously report potential red flags 24/7. So why would a telephone number reduce fraud?
The camera effect.
We know that when potential fraudsters believe their thefts will be seen, they stay clean. No one wants to go to jail. No one desires to embarrass themselves or their family members.
The key is to introduce the threat of discovery.
This is why whistleblower programs are effective. When in place, such programs make employees feel that others see their actions. For example, if I make $40,000 a year, but I buy an $80,000 vehicle, my fellow employees (at least some) know this is a fraud signal. Now someone can report this signal using the whistleblower program. Think of the whistleblower programs as lots of roving cameras recording and communicating actions in real time. Now employees believe, “If I take, I will be seen.”
When I teach fraud prevention classes, I stand in front of the room and turn a security camera on. It whirls and turns, making class members feel as though they are being recorded. It’s funny; people act differently. They sit up, fix their hair, smile. After the camera rotates a couple of times, I say, “The camera is not hooked up to anything. You are not being recorded.” What did I do? I made them think they were being taped.
My teaching point: We want employees to believe their actions are visible. The camera effect causes positive actions.
Here are examples of fraud prevention steps that create the camera effect:
What are you doing to create the camera effect? White-collar crime is a real threat to your organization.
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Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty years, he has primarily audited governments, nonprofits, and small businesses. He is the author of The Little Book of Local Government Fraud Prevention and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events. Charles is the quality control partner for McNair, McLemore, Middlebrooks & Co. where he provides daily audit and accounting assistance to over 65 CPAs. In addition, he consults with other CPA firms, assisting them with auditing and accounting issues.
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[…] If possible, the client should have a second person examine reports or other supporting documentation. How often should the review be performed? Daily, if possible. If not daily, as often as possible. Regardless, a company should not allow someone with the ability to steal to work alone without review. The fear of detection lessens fraud. […]
Benson, all good thoughts. Sorry if the post sounded like I’m promoting just going through the motions with controls; not my intent. I’m simply saying the presence of potential detection keeps many potential fraudsters at bay. I do think controls should be in place and actually performed. You are right. If employees notice that controls are not actually being performed, they may take advantage of the weakness.
Also the examples I gave are not intended to be a full set of such controls, just sample ideas. Thanks for sharing your thoughts.
I agree that robust whistleblower programs and tip lines can be extremely effective, but they have to be continually marketed and promoted. If they’re not, they become dormant and ineffective and just another expense. I also think any organization needs to avoid and reject fake internal controls. Don’t try and con a con. If you are going to the trouble of creating an internal control, make it a cost effective and valuable internal control. Don’t ever just go through the motions. People will get wind of that kind of activity and management’s credibility will fall in the eyes of the employees. That could backfire in that people may begin to grow negative feelings toward management, possibly increasing the risk of fraud.
Instead of 10 random checks each month, review all invoices from any new vendors. Having a second party opening and reviewing the bank statements should be required in all small organizations, but it needs to be done thoughtfully. It becomes unmanageable with even a mid-sized organization, depending on check volume. Instead of a surprise test of some random area twice a year, do a rolling update of existing workflow and related internal control for the various key accounting processes. Don’t forget to review the organization’s credit report at least once a year.