Fraud. Has Sarbanes-Oxley lived up to the billing it would tame this gold-plated beast? First, the good news. SarbOx has achieved the desired effect of stemming fraudulent activities that kick companies square in the pocketbook.

Public companies with SarbOx-style controls in place saw fraud-related losses drop between 70% and 96%, according to the Association of Certified Fraud Examiners.

The bad news: The more sophisticated fraudsters, ones who specialize in highly damaging financial statement scams, are more successful than ever. If anything, companies with effective SarbOx controls in place took it on the chin from scammers, worse than companies lacking such controls.

The hopeful news: There are three methods of discouraging fraud that are proving to be effective regardless of the specific target.

The best way to protect your company — and discourage fraud — is to implement surprise audits. Certified occupational fraud examiners who investigated 959 cases determined that companies that implemented random audits reduced median fraud loss to $70,000. Among companies that didn’t pull surprise audits, the median loss was a hefty $207,000.

So how many companies are employing the most-effective weapon against fraud? Experts estimate it’s only about 25%.

The second-most effective tactic in discouraging fraud is implementing job rotation and/or mandatory vacation.

Mandatory vacation? Ouch! This potentially costly strategy is mainly used in businesses where the risk — and the cost — of fraud is exceptionally high. Still, companies that ordered employees to take vacation and played musical chairs regularly saw a 61% decrease in the median fraud loss.

Finally, the third-most effective tool for reducing cases of fraud is perhaps the simplest and the least expensive: Offering a ”hotline” to report suspicions of fraud. Whistleblowing programs score especially well when it comes to nailing the higher-level execs. Hotlines achieve a 60% decrease in median loss.

There’s also one strong pre-emptive strategy: Better background checks on the people who are going to have access to vulnerable areas. Close background checks can yield inappropriate behavior in the past that may have eluded initial scrutiny of the would-be employee.

Tags: fraud, SarbOx, surprise audit, vacation