The best method is to have adequate segregation of duties in all significant accounting processes to ensure multiple employees are responsible for authorizing transactions, recording transactions, reconciling transactions, and having access to cash or other assets. If only one person is responsible for all four of these functions, committing fraud is simply too easy.
A risk assessment can identify where a company is vulnerable and what controls are needed to prevent fraud and detect it. Once the controls are in place, top managers should regularly monitor compliance to ensure they are being followed. Designing good internal controls is only half the battle; you must make sure controls are not being circumvented.
Good financial oversight by owners and management is one of the best measures for detecting a significant fraud.
If you are an owner, you should actively and regularly review financial statements, following up on any unusual amounts or relationships. This review should include the balance sheet and the profit and loss statement. Too often, management will only focus on the profit and loss statement and the bottom line income without reviewing the balance sheet where many fraudulent transactions can be buried.
Owners can also work with their outside CPA for guidance. If your company currently has an annual audit by an independent CPA, they will already be assessing your internal controls and providing you with a report with suggested improvements. If you do not currently have an annual audit, you can engage an independent CPA to perform an internal control assessment consultation to identify weaknesses and potential improvements.