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In this new business world where departments have been cut so one employee may do the work of two, the opportunity for internal fraud increases dramatically. Companies need to be proactive to stay ahead of the fraud triangle – where opportunity, pressure and rationalization meet. In order to do this, management should make sure to do the following three things to protect themselves:
Educate Employees About Fraud
- Teach employees about the red flags for fraud – incomplete financial reports, no back up for expenses, low employee morale or employees afraid to take time off. Also, be aware of changes in lifestyle that are inconsistent with demonstrated past behavior and/or not in line with the position within company. For example, the accounts payable clerk that begins wearing expensive jewelry and is driving a luxury car.
- Inform employees about the cost of fraud for the business. The average fraud case will cost a company $160,000. That could mean the difference between raises, bonuses, or even laying off an employee.
- Let them know you will always report fraud and seek the help of law enforcement to find the culprit.
- Involve employees in key decisions that impact their area of operations, so that there is a greater sense of investment/ownership in operations.
Hold Surprise Audits
- Surprise audits are a great way to deter fraud within a company. The unannounced review of a specific department, division or person in the company will keep the other departments on their toes. This is similar to a surprise cash count in a retail store, when a manager counts out the employee’s drawer. There is no advance notice and depending in who or what is being audited, it can be done by a manager, internal auditor, external auditor or other accounting person.
- Inform all employees that surprise audits will occur throughout the year and include that in training or orientation meetings so they know from the very beginning that they could be audited.
Make it Easy to Report Fraud
- Tell employees that they can always report suspicions of fraud anonymously through a hotline or comment box you have set up in a private area of the office.
- Maintain an open door policy with management
- Set the proper tone from the top down with upper management demonstrating strong decision making and ethical conduct as an example to others.
If you suspect an employee of fraud, forensic accountants can sift through the financial data and track where fraud occurred. They then analyze the data to find out just how much money was stolen and often work with law enforcement to report their findings. Contact a Certified Fraud Examiner at Piercy Bowler Taylor & Kern if you are in need of these services.
Tricia J. Cook is a senior forensic analyst with the forensic accounting and litigation services department at Piercy Bowler Taylor & Kern CPAs. She sifts through financial transactions to resolve allegations or evaluate suspicions, interpreting that transactional data and then organizing that information into easy to understand reports for use by counsel, or for presentation in a court-of-law. She can be reached at email@example.com or 702-384-1120.