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Fraud prevention: the most cost-effective way to reduce losses from fraud.When perceived pressure and/or opportunities are high, a person needs less rationalization to commit fraud. When perceived pressure and/or opportunities are low, a person needs more rationalization to commit fraud. Sometimes pressure and/or the ability to rationalize are so high that no matter how hard the organisation tries to prevent fraud, theft still occurs.Create and maintain a culture of honesty and high ethicsTop management models appropriate behaviour (tone at the top/ proper modelling)Hiring the right kind of employeesCommunicating expectations of honesty and integrityCreating a positive work environmentDeveloping and maintaining an effective policy for handling fraudAssess and mitigate the risk of fraudAccurately identifying sources and measuring risksImplementing appropriate preventive and detective controls to mitigate those risksCreating widespread monitoring by employeesHaving internal and external auditors who provide independent checks on performancea.Create and maintain a culture of honesty and high ethicsi.Top management models appropriate behaviour (tone at the top/ proper modelling) Management cannot act one way and expect others to behave differently. Management must reinforce to its employees through its actions that dishonest, questionable, or unethical behaviour will not be tolerated. ii.Hiring the right kind of employeesBy hiring the right kind of employees, management can select people who are less likely to rationalize their illegal or unethical actions as acceptable. When facing with significant pressure and opportunity, many people will behave dishonestly rather than face the perceived negative consequences of honest behaviour. To be successful in preventing fraud, it must have effective hiring policies that discriminate between marginal and highly ethical individuals. Proactive hiring procedures include conducting background investigations on prospective employees, thoroughly checking references and learning how to interpret responses to inquiries asked about candidates, and testing for honesty. Ethical maturity model (EMM)explains why people make unethical decisions (TB p.72)1.Foundation: personal ethical understandinga.Learning the difference between right and wrong
b.Developing a sense of fair playc.Learning to care for and empathize with othersd.Developing respect for otherse.Learning basic principles of integrity and realityf.Acting in a consistent manner with the values a person knows to be right2.2nd: application of ethics to business situations: interpretation of valuesa.Translate one’s ethical understanding to the business settingsb.People did not know how or were afraid to translate their personal ethical values to their positions and decisions in the business world3.3rd: ethical courage: make the decision you know is right even when faced with adverse consequencesa.Strength and conviction act appropriately in difficult or questionable situationsb.