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Preventing and eliminating fraud from the Inside

Respecting information provided by whistleblowers is an important factor in pr

Risk management strategies for preventing corporate fraud are as essential as those that mitigate investment risk and ensure accurate accounting practices. CFOs should implement strategies to prevent fraud or quickly locate and eliminate it should fraud occur.

"The majority of corporate fraud cases pursued by the FBI involve accounting schemes designed to deceive investors, auditors, and analysts about the true financial condition of a corporation or business entity," according to the FBI's Financial Crimes Report to the Public for fiscal years 2010-2011. "In addition to significant financial losses to investors, corporate fraud has the potential to cause immeasurable damage to the U.S. economy and investor confidence."

Writing in Forbes, forensic accountant Craig Hirsch says companies can take steps to encourage employees to come forward and expose fraudulent practices within an organization.

Most importantly, CFOs, CEOs and other top-level executives need to value information provided by whistleblowers. Changing the stigma over using whistleblower hotlines and rewarding those who identify areas and situations where fraud is occurring are important things for executives to consider, but conveying to employees that their actions will be respected by management is the best way to prevent or eliminate fraud, according to Hirsch.