In recent years, fraud has become a growing threat to businesses of all sizes. From global corporations to small, family-run enterprises, no organisation is immune to the risks posed by increasingly sophisticated fraudulent activity. So, how can businesses protect themselves and prevent fraud? Robust corporate governance is a critical line of defence. Below, we outline practical, proactive measures that businesses can implement to reduce their exposure and prevent becoming a victim of fraud.
The Rising Threat of Fraud
Fraud can take many forms, ranging from financial statement manipulation and asset misappropriation to bribery and corruption. In today’s evolving business environment, the threat is growing more complex. The widespread shift to remote work, the acceleration of digital transactions, and the increasing sophistication of cybercriminals have all amplified the risks.
According to the Association of Certified Fraud Examiners (ACFE), businesses lose an estimated 5% of their annual revenues to fraud. This stark statistic underscores the urgent need for businesses to adopt proactive, preventative measures.
Key Contributing Factors:
- Increased Digitalisation – The shift to online operations has created new vulnerabilities and expanded the attack surface for cyber fraud.
- Remote Work Environments – Reduced physical oversight and fragmented communication can lead to gaps in controls and higher exposure to internal fraud.
- Weak Internal Controls – Inadequate or outdated policies, processes, and safeguards provide opportunities for fraudsters to exploit systems and loopholes.
- Employee Pressure – Financial stress, job insecurity, or pressure to meet unrealistic performance targets can drive individuals to commit fraud.
The Role of Corporate Governance in Fraud Prevention
Strong corporate governance is fundamental to building an ethical workplace culture, promoting transparency, and ensuring accountability across all levels of an organisation. For small businesses, in particular, a solid governance framework not only supports day-to-day operations but also plays a vital role in identifying, preventing, and responding to fraud. Ultimately, it helps protect both assets and reputation.
Key Benefits of Robust Corporate Governance:
- Risk Mitigation – Establishes a structured approach to identifying, assessing, and managing fraud risks before they escalate.
- Enhanced Stakeholder Trust – Demonstrates integrity and responsibility, building confidence among investors, customers, employees, and business partners.
- Regulatory Compliance – Supports adherence to legal and industry-specific regulations, minimising the risk of penalties and legal disputes.
- Reputation Protection – Helps preserve the business’s credibility and public image—an essential asset for sustainable growth.
Practical Steps to Strengthen Governance for Fraud Prevention
Implementing effective governance doesn’t have to be complex, businesses of every size can take meaningful steps to build a strong foundation for fraud prevention. Below are practical strategies that can strengthen your governance framework and create a more fraud-resilient organisation:
1. Establish Clear Policies and Procedures
Develop and communicate formal policies that define acceptable conduct, outline reporting mechanisms, and specify consequences for fraudulent behaviour. Ensure all employees understand and acknowledge these guidelines.
2. Strengthen Internal Controls
Implement checks and balances that reduce opportunities for fraud, such as:
- Segregation of duties – Ensuring no single employee has control over all aspects of a financial transaction reduces the opportunity for fraudulent behaviour to go undetected.
- Regular audits – Use regular internal and external audits to identify vulnerabilities, assess compliance, and reinforce accountability throughout the organisation.
- Approval hierarchies – Transparency and a clear chain of command ensures accountability and discourages fraud and negligence.
- Restricted access to sensitive systems and data – limits opportunities for unauthorised actions.
3. Promote a Culture of Ethics and Integrity
- Code of Conduct – Develop and enforce a clear code of ethics that outlines expected behaviours and practices across all levels of the business.
- Training programs – Provide regular training on fraud awareness, ethical decision-making, and company policies to ensure employees understand their role in preventing fraud.
- Encourage reporting – Foster an environment where employees feel safe and supported in speaking up about suspicious behaviour or unethical practices.
- Leadership accountability – essential for driving change and maintaining ethical standards. When owners and managers model ethical behaviour and transparency, it influences the entire organisation.
4. Implement Whistleblower Protections
Anonymous reporting mechanisms – Confidential channels, such as hotlines or online portals, that allow employees to report concerns without fear of retaliation can be especially effective in uncovering internal fraud.
5. Monitor Transactions and Activities
- Data analytics – Leverage technology to detect anomalies and monitor transactional data for irregular patterns that may signal fraud.
- Regular reviews – Periodic reviews of financial statements and operational processes can catch discrepancies early.
6. Engage External Experts
Bringing in external advisors or specialists to review your controls and governance practices can provide valuable, objective insights. These outside perspectives help uncover blind spots, validate your approach, and enhance your overall risk posture.
Strengthening Governance to Safeguard the Future
As fraud continues to pose a significant risk to businesses, the importance of good corporate governance cannot be overstated. By implementing strong internal controls, promoting ethical behaviour, and fostering a culture of openness and transparency, organisations can greatly reduce their vulnerability to fraud.
Taking a proactive approach to governance not only protects a company’s assets but also strengthens its reputation and supports long-term success. In today’s complex business environment, the cost of neglecting these measures often far exceeds the investment required to build a strong governance framework.
If you need help establishing effective governance frameworks for your business reach out to Joseph at jseneca@matsteer.com.au or 03 9325 6300
Published June 2025
Joseph Seneca is an Associate at Matthews Steer, specialising in complex tax and structuring issues. He approaches challenges with an entrepreneurial mindset, delivering strategic solutions for clients.