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Concept of accusation of guilty arrogant businessman. Middle aged man judged by different people many women fingers point at him. Guy shrugs shoulders
Many organizations and individual business owners face fraud and theft each year due to their employees. The risk of fraud has increased due to the advancement of technology and progressive development of the world into a global village. According to 2014 research reports by global nation, organizations face 5 % loss due to fraud each year, in which 85 % of serious fraud cases were committed by internal employees. Organizations should develop multi-layered fraud prevention strategies while keeping these statistics in view. Practice the following plans and policies to prevent fraud and employee theft in your business.

Practice Corporate Culture

Corporate culture defines procedures and policies which govern employees. The organizational structure of reporting systems, the accountable person, their segregation of duties, job responsibilities and limitations should be clearly defined. Hire the right employees by investigating their past employment history and educational background.

Establish an Anti-Fraud Policy

A documented policy which defines fraud, its prevention, and detection policies should be implemented after proper training of all employees. A zero tolerance policy of all kinds of fraud should be communicated to employees. They should also be aware of actions which would be taken in case of fraud.

How to Prevent Theft of Physical Assets:

Random and Surprise Audit System

Along with an annual and quarterly audit of assets, a system for uninformed audits should also be developed. Under pressure of unexpected audits, employee avoids stealing and fraud.

Segregation of Duties

Duties of inventory management staff should be clearly segregated to prevent fraud. Purchase order issuance and receiving of stocks should be done by two different individuals.

Security Cameras

In inventory storage areas, CCTV cameras should be installed to prevent employee theft.

Limited Access to Inventory Storage Areas

Only authorized personnel should be allowed to enter areas in which inventory is kept and these areas should be kept locked in off hours. Keys should be issued to specified individuals only.

How to  Prevent Check Tampering:

Security of Blank Checks

Blank checks should not be accessible to anyone and should be locked until required for bookkeeping.

Check Bank Statements of  Business

A review of monthly bank statements helps in detecting fraud in the form of tampered checks.

How to Prevent Expense Reimbursement Schemes:

Receipts of Expenses

For reimbursing expenses, demand a receipt of the amounts that the employee is claiming.

Policy for Expense Reimbursement

A company must have a documented expense reimbursement policy. A clear segregation of reimbursable expenses should be defined in that policy and every employee must receive a copy of the reimbursement policy.

Comparison of Expense Reports

A comparison of expense reports submitted by different employees should be made to evaluate the legality of expenses.

How  to Prevent a Billing Scheme:

List of Approved Vendors

To prevent fraud at this level, maintain a list of approved vendors and do research to ensure the legality of the vendors. If you don’t practice this simple plan, then you may be paying fake companies.

List of Approved Price

An approved price list should also be maintained to avoid payment at higher rates.

Signed Receipts

Sign a check only if a signed receiving of the product is attached.

How to Prevent Theft of Cash:

Manager’s Approval

Sensitive transactions should always be accomplished after approval of a manager only.

Monthly Account Statements

Regular updates of customer accounts prevents fraud at this level.

Rotation of Duties

Rotation of duties and sending employees on annual leaves and vacation prevents employee theft because the employee has the terror of easy detection by others.

Bank Lockers

Cash and payment handling by employees should be minimized to prevent cash theft. Payments should be received directly in a bank account of the company.

Surprise Audit of Cash

Discrepancies in cash can be detected easily by counting the cash and comparing it with receipts.

Video Cameras

Install video cameras in sensitive areas where cash is handled to prevent stealing.

Conclusion

Fraud prevention is critical to secure your business. Following the above plans and policies in an organized manner will prevent employee theft.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

Fraud Alert ahead warning signage on the road ahead.
Many organizations and individual businessmen face fraud each year due to their employees or business partners. New entrepreneur start-ups and small businesses are more vulnerable. Risk of fraud has increased due to the advancement of technology and progressive development of the world into a global village. The increased awareness of technological development and complex organizational structure requires corporations to incorporate internal anti-fraud approaches to combat fraud. According to 2014 research reports by global nation, organizations face 5 % loss due to fraud each year, in which 85 % of serious fraud cases were committed by internal employees. Organizations should develop multi-layered fraud prevention strategies while keeping these statistics in view.

Eliminate all loopholes that facilitate employees by implementing these six fraud prevention strategies.

1. Corporate Culture

Corporate culture defines procedures and policies which govern employees. The organizational structure of reporting systems, the accountable person, their segregation of duties, job responsibilities and limitations should be clearly defined.

Hire the right employee by investigating their past employment history and educational background. All employees should know the tactical approaches which exist in their organization to prevent fraud. A documented policy which defines fraud, its prevention, and detection policies should be implemented after proper training of all employees. Any kind of leniency or flexibility in misconduct or suspicious activities should be avoided. As this ignorance will lead to the violation of policies, indirectly encouraging employees to plan a fraud. A zero tolerance policy of all kinds of fraud should be communicated to employees. They should also aware of actions which would be taken in case of fraud.

 

2. Internal Controls

An internal control of systems and organization define the plans to prevent the company and its assets from any kind of fraud and theft. This system should be revised frequently to analyze its effectiveness. It should be regularly updated according to the new needs, development, and advancements of it’s company. Internal controls should clearly define accountability and compliance.

Documentation is the integral part of an internal control system and the most important tactic for fraud prevention. All procedures and transactions should be documented to minimize fraud. Every expense should be approved and countersigned by a managerial level employee so that the validity of receipts and expenses can be ensured. Restrict all physical and technical approaches to documents and information.

 

3. An Independent Audit System

An independent audit team should be contracted to conduct regular as well as surprise audits to check inventory and cash situations. Checking of vacation balances should be mandatory as well.

Annual and quarterly audits should be monitored by the audit committee. Results of any internal audit should also be validated by this team. 29%  of all fraud cases are detected by audit teams, a report says. This team is well aware of risk factors for fraud and policies to prevent fraud. They also monitor the policies to be strictly followed to prevent the more risky procedures.

4. Effective Reporting System to Reduce Fraud

An effective reporting system should be developed. All employees should know how and where to report any suspicious activity. There should be an anonymous reporting system to report fraudulent cases because many employees are hesitant and reluctant to disclose their identity while reporting others.

All employees should be aware of the fraud prevention and the company’s reporting system. And, they should be encouraged to report anything they find suspicious. According to a report, 40% of fraud cases are detected by a tip given by employees.

5. Monitor and Check Vacation Balances

Checking vacation balances should be mandatory. Vacation provides a chance of fraud in the business. Bookkeeping may be tampered by the bookkeeper during vacations or checks may be stolen during stressful times such as the holiday season.

6. Hire a Professional Fraud Prevention Expert 

Certified fraud examiners could be hired as a part of a fraud prevention program. They play a vital role in generating and implementing fraud policies. They provide consultancy against internal control audit systems and detection of fraud.

Conclusion

Fraud in business can result in major financial loss, wastage of time, and a ruined reputation. Implementation of multilayered fraud risk strategies leads to a successful strategic business corporate organization.

Check out America's Best Bookkeepers

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

Businessman upset by the accusations of colleagues
For business entrepreneurs and small business owners, employee fraud can be a difficult subject and certainly an intimidating task. When it comes to the prevention of theft, stealing, larceny, shoplifting, and embezzlement, which all come under the umbrella of fraud, employers need to come up with a sensible plan and execution strategy to protect their business from potential internal and external threats. According to studies, employees can change the entire fate of the company they are working for by remaining true and honest with their profession. However, those who intend to steal from you need to be held accountable for their fraudulent behavior. A precedent for the company must be set, which will help prevent future theft and fraud.

In the US alone, businesses lose about $70 billion in annual revenues and profits due to employee theft and fraud. This indicates that employee theft is inevitable. However, businesses can minimize potential threats by devising theft prevention techniques and implementing systems that will help them counter impending threats, either internally or externally. Employees who intend to steal from you find sneaky ways to cheat or steal and will take advantage of the loopholes an organization may have. They are well aware of company’s processes and systems that it uses to manage its business affairs.

It’s Never Easy to Find the Right Person Involved in Fraud

Small business owners counter a lot of problems regarding employee theft and fraud throughout the course of their business journey. Business owners must play a predominant role in minimizing theft threats and danger that may hurt the integrity and long-term operations of their business. However, catching those involved in theft or other fraudulent activities is no easy feat. 

Why Employee Theft Happens

There are numerous reasons why employee theft and fraud may happen. It may occur due to personal reasons like gambling, maturing debt, emergencies, personal issues with the owners of the company, or perhaps due to the opportunity at hand. Besides going into the details of employee theft and what makes someone steal from a company, we will briefly explain it with the 10-10-80 rule.

It states that 10% of employees would never steal from a company, 10% would take any opportunity at hand, and 80% would access the opportunity by examining their needs and determining whether or not they should commit the act. This 80% is what companies need to prevent from happening through effective preventive measures and techniques.

What to Do When You Discover Employee Theft or Fraud

Small businesses are often reluctant to involve the police when they discover employee theft or embezzlement happening within their company. There are four choices to make when you catch an employee stealing from your company. You can follow disciplinary procedures and fire your employee, call police for criminal offenses and proceedings, call your attorney, or call your insurance agent.  

Disciplinary Procedures

If you have evidence of employee fraud, you can simply take actions stated in your disciplinary procedures. You can recover your losses by asking them to return what they stole or compensate the company so that legal procedures are not pursued, which may result in jail time. Once you recover your losses, you can fire the culprit or not—as you deem appropriate.

Call Your Attorney

You can also call your attorney for proper legal proceedings against the culprit. They may help you file a lawsuit against the perpetrator. Also, they may help you find and hire a forensic accountant who will review and investigate your bookkeeping and accounting records in order to file a strong claim against the perpetrator.

Call the Police

Once you’re done working with your attorney, calling the police to report employee theft or fraud seems entirely appropriate. However, having the police show up at your place of business may disrupt your operations, which means additional disruptions to your business such as taking statements from coworkers and employees. You must be very careful to make the right choices for the fate of your company.

Call Your Insurance Agent

If your business is insured against employee theft or fraud, remember to call your insurance company to recover your losses. If you have been paying for the insurance fees, you deserve the right to recover for your losses.

Check out America's Best Bookkeepers


About Complete Controller® – America’s Bookkeeping Experts
 Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

Fraud sign
Your business might have installed security systems in office areas and you may have security checks in your accounting software. There are procedures implemented to stop fraud, but, even then, fraudulent practices can be brewing. As a small business owner, you must not only rely on carrying out day to day business operations and bookkeeping duties. You must keep a close look for warning signs that may indicate your business is a victim of fraud.

Here are some simple but important warning signs that indicate your business is vulnerable to fraud.

Too Much Access

If you have given too much access to the financial bookkeeping of your business, then your business is already at risk of fraud. A single employee should not be given all of the access to receiving cash, payments, tracking expenses and various other bookkeeping functions. Instead, separate your employees for different steps of bookkeeping management. There should be separate people for bank transactions, expenses, receiving cash from customers, paying bills, and bank deposits.

Difference in Accounting Statements

If you have an electronic system or your accounting statements are done manually on a register, the financial statements should match with the cash flow statements and balance sheet. In manual bookkeeping, there is always a chance of honest error, but keep an eye on any difference in the amount in accounting statements.

One Employee is Spending More than Usual

If one of your employees starts spending more than usual, keep a close eye on their activities in your business functions. There is a possibility they might be involved in some kind of fraudulent practice. A fixed pay usually does not leave room for spending extra than actual needs.

Always Provide Emotional Support to your Employees

Most of the frauds in small business are done to meet desperate ends for an employee. A simple relaxation and support in a time of distress, such as flexible office times, make your employees more loyal to the company.  Get to know your employees and let them know that you support them.  This will make it harder for them to be disloyal to you.

Excessive Transactions

If there are numerous transactions to clear errors, it might be done in an attempt to hide some fraud. If there is more than one payment for a single bill, it again might be the case of fraud. Always keep a sharp eye on the bookkeeping in your business.

Expanding Standard Expenses

Employees of a business are given various privileges. They can be paid credit for the phone calls they make during business functions. Many are provided with fuel for their cars or other travel and transportation expenses. Some employees may try to earn a profit for themselves out of the expenses that your company pays. For example, say they get a $15 bill for a taxi-ride which can easily be availed in less than $10. Many use office phones for private calls. To minimize personal profits on such claims, a receipt should be asked for to accompany the claim from the employee.

Overcharging the Company Cards

Many businesses give corporate credit cards to its employees when they are going on a business trip. When the credit card bill arrives, do not blindly sign the bill. Check the outlets where this card had been used. Your business money should not be used for an employee’s recreational activities during business trips other than necessary expenses, unless approved beforehand.

Double Billing

Many frauds fall into a double billing fraud type. An employee uses a business credit card for making an expense. Then they again submit the receipt for the same expense to reimburse the money, hoping you won’t notice. There should be a strict procedure to keep a check and balance on double billing frauds.

Refusal to Leave Bookkeeping Tasks to Others

If an employee is working alone in a company and is not allowing others to “look over their should”, if you will, a check on their activities must be kept. They might be involved in fraudulent practices and attempting to hide their activities.

Unusual Working Hours

If an employee has a routine of unusual working hours, they might also be involved in some kind of fraud in your business bookkeeping. For example, he/she is leaving later than normal office times and doing overtime without a demand for extra payment. These are signs of some kind of special interest in your business that lead to negative behavior.

Conclusion

Your business can be more vulnerable to fraud than you think, even if you have safety measures in place. You must be aware of unusual practices going on in your office. Build a good relationship with your employees. At the same time, keep a close look on the practices going on in your office to prevent fraud in your business.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

Hand writing text caption inspiration showing Fraud concept meaning Criminal hacker security prevention written on old announcement road sign with background and space
The most important elements in the area of fraud are considered to be risk and materiality. The assessment of the importance of these factors will, to some degree, determine how serious the corporation treats the prevention and detection of fraud. It will also affect the means dedicated to fraud related tasks, so it is important for all assessors to give proper consideration to the risk and material of fraud in their organization. Not everyone can afford the high-tech resources needed for fraud prevention, but there are some definite preventive measures that can be practiced by anyone.

Types of Fraudulent Acts

Fraud can be committed through many types of media including mail, wire, phone, and the internet (Computer Crimes and Internet fraud). The international magnitudes of the web and comfort with which users can hide their location, the trouble of checking identity and legality online, and the simplicity with which hackers can distract browsers to fraudulent sites and steal credit card details have all subsidized to the very rapid growth of internet fraud. In some countries, tax fraud is also prosecuted under false billing or tax forgery.

Fraud as a Civil Wrong

The court structure observes fraud as a civil wrong, known as a “tort.” Each jurisdiction has a definite description of fraud, but it is mostly deliberated to be the intentional misrepresentation of essential facts. For a civil wrong to be reflected, certain features must be in place, including:

1. Demonstrating the state of mind of both the committer and victim at the time of the crime

2. Substantiating the fraud occurred with clear and conclusive evidence

Fraud as a Criminal Offense

Certain varieties of fraud are categorized as criminal offenses, mainly if the offender is involved in theft under false simulations. Like civil wrongs, certain features must be in place for fraud to fall under the category of a criminal offense.

1. Deliberate sham by false pretense with the intent to persuade the victim to part with money or property

2. The belief in the dishonesty by the victim, who actually parts with the money or property under the false pretenses

3. The perpetrator keeping, or aiming to keep, the money or property in inquiry

Fraud prevention

It is vital to an association, large or small, to have a fraud prevention plan in place. Fortunately, there are ways you can minimize fraud incidences by executing different measures and controls.

1. Know your employees: Fraud committers often display behavioral mannerisms that can indicate the intent to commit fraud. Observing and listening to employees can help you identify a potential fraud risk. It is important for management to be involved with their employees and take the time to get to know them.

2. Make employees aware/set up reporting system: Awareness affects all personnel. Everyone within the association should be conscious of the fraud risk policy containing types of fraud and the consequences associated with them. Those who are planning to commit fraud will know that management is watching and will hopefully be dissuaded by this.

3. Implement internal controls: Internal controls are the plans and/or programs that are applied to safeguard your company’s possessions, ensure the reliability of its accounting records, and prevent and detect fraud and theft.

4. Monitor vacation balances: You might be enthralled by the employees who haven’t missed a day of work in years. While these may sound like loyal employees, it could be a sign that these employees have something to hide and are worried that someone will detect their fraud if they were out of the office for a period of time. It is also a good idea to rotate workers to various jobs within a firm.

5. Hire Experts: Certified Fraud Examiners (CFE), Certified Public Accountants (CPA) and CPAs who are certified in Financial Forensics (CFF) can help you in establishing anti-fraud policies and procedures. These specialists can provide a wide range of facilities from complete internal control audits and forensic analysis in general to basic consultations.  

6. Live the corporate culture: A positive work environment can prevent employee fraud and theft. There should be a clear organizational structure, written policies and procedures, and fair employment practices. An open-door policy can also provide a great fraud prevention system as it gives employees open lines of communication with administration.

Final Note

Those who are willing to commit fraud do not differentiate. It can happen in large or small companies across various industries and geographic locations. Professional fraud can result in enormous financial loss, legal costs, and a ruined reputation that can eventually lead to the downfall of a business. Having the proper plans in place can suggestively reduce fraudulent activities from occurring or cut losses if a fraud has already occurred. Following through with the policy and enforcing the noted steps and consequences when someone is caught is crucial to preventing fraud.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

Fake business man with clipping path
Many organizations and individuals face employee theft and embezzlement each year. Embezzlement is theft or misappropriation of funds by employees. According to a 2012 report from the Association of Certified Fraud Examiners (ACFE), “the typical U.S. business loses 7% of its annual revenues to employee fraud”. Small businesses have the most cases and the highest losses. Risk of fraud has increased due to the advancement of technology and progressive development of the world into a global village. Organizations should develop multi-layered fraud prevention strategies while keeping these statistics in view.

Warning signs:

  1. The employee is working extra hours.
  2. Petty cash and supplies are decreasing rapidly.
  3. The employee is frequently taking work home.
  4. The employee has an unusually close relationship with vendors.
  5. Employee is obviously spending more than they are earning.

How to Prevent Theft of Physical Assets:

Random and surprise audit system:

Along with annual and quarterly audits of assets, a system for uninformed audits should also be developed. Under pressure of unexpected audits, employees are normally more likely to avoid stealing and fraud.

Segregation of duties:

Duties of the inventory management staff should be clearly delegated to prevent fraud. Purchase order issuance and receiving of stocks should be done by two different individuals.

Security cameras:

In inventory storage areas, CCTV cameras should be installed to prevent employee theft.

Limited access to inventory storage areas:

Only authorized personnel are allowed to enter areas where there is a lot of inventory or financial information.  It should also be kept locked during off hours. Keys should be issued to specified individuals only.

How to  Prevent Check Tampering:

Security of blank checks:

Blank checks are not accessible to anyone and should be locked until required for bookkeeping.

Check bank statement of  business:

Review of monthly bank statements helps in detecting fraud in the form of tampered checks.

How to Prevent Expense Reimbursement Schemes:

Receipts of expenses:

For reimbursing random employee expenses, demand a receipt of those expenses which the employee is claiming.

Policy for expense reimbursement:

A company must have a documented expense reimbursement policy. A clear segregation of reimbursable expenses should be defined in that policy and every employee must receive a copy of reimbursement policy.

Comparison of expense reports:

A comparison of the expense reports submitted by different employees should be made to evaluate the legality of expenses.

How  to Prevent a Billing Scheme:

List of approved vendors:

To prevent fraud at this level, maintain a list of approved vendors and do research to ensure the legality of the vendors. If you don’t practice this simple plan, then you may be paying fake companies.

List of approved price:

The approved price list should also be maintained to avoid payment at higher rates.

Signed receipts.

Sign a check only if a signed receiving of the product is attached.

How to Prevent Theft of Cash:

Manager’s approval:

Sensitive transactions should always be accomplished after approval of a manager.

Monthly account statements:

Regular updates of customer account statements prevent fraud at this level.

Rotation of duties:

Rotation of duties and sending the employee on annual leaves and vacation prevents employee theft because the employee has the terror of easy detection by others.

Bank lockers:

Cash and payment handling by employees should be minimized to prevent cash theft. Payments should be received directly into a bank account of the company.

Surprise audit of cash:

Discrepancies in cash can be detected easily by counting the cash and comparing it with receipts.

Video cameras:

Install video cameras in sensitive areas where cash is handled to prevent stealing.

Conclusion:

Fraud prevention and fraud handling are very essential to secure your business. Following the above shortcuts in an organized manner will lead to an anti-fraud policy that actually works and strong internal controls.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

 

 

 

Fraud word on colorful dices
Many organizations and business owners face fraud each year due to their employees or business partners. New entrepreneur startups and small businesses are more vulnerable. The risk of fraud has increased due to the advancement of technology and progressive development of the world into a global village. The increased awareness of technological developments and complex organizational structure requires corporations to incorporate internal anti-fraud approaches to combat fraud. According to 2014 research reports by global nation, organizations face 5 % loss due to fraud each year in which 85 % of serious fraud cases were committed by internal employees. Organizations should develop multi-layered fraud prevention strategies while keeping these statistics in view.

Organizations and businesses should do the following 10 things when they suspect fraud.

1. Be Calm and Don’t Panic

Fraud is scary and you will likely want to panic and react abruptly when you suspect fraud at your organization. You may terminate the fraudster on the spot or meet them head-on for confrontation. But these are harmful rather than good for the organization. Don’t react when you are emotional or angry. Prepare a plan, investigate, and do what is beneficial for the organization. Make strategies and policies to handle fraud before it happens.

2. React Logically

It is not preferable to overreact or have no reaction at all to a suspect. If you don’t react and take it easy, the perpetrator will think that they are free to do anything. Ignorant behavior towards fraud will make it worse and the perpetrator commit fraud without any fear of consequences. Always take action when you suspect the fraud but react logically.

3. Be Careful

If you suspect fraud, don’t declare it until you have evidence. If you react without evidence, the fraudsters become alert. The fraudster will try to hide and destroy evidence if they know they are being exposed and you are keeping an eye on them. After suspecting something is wrong, don’t make it obvious. Investigate carefully, otherwise, you will not be able to get any evidence.

4. Back up Financial Data

Always maintain backup data of your organization’s financial dealings. Save on hard copies or hard drives. Get a copy of a hard drive of your suspect discreetly. Preserve all records of transactions, emails, payroll, and bookkeeping. Perpetrators often utilize this information, especially bookkeeping records, to commit fraud.

5. Rehiring

Be mindful and prepare for hiring new personnel. Termination is the minimum consequence of fraud detection. Managers and executives are often so involved in the actual fraud itself that filling the new position can be challenging. Prepare yourself for such challenges.

6. Defend your Reputation

Fraud damages the image and reputation of the organization in front of the public, customers, partners and donors. Try to react calmly and defend your reputation. Resume trust of partners and customers by assuring them that the organization has taken corrective measures.

7. Don’t Save Money

Financial loss due to fraud is recoverable, but the reputation is not recoverable. Hire a certified fraud examiner to make policies for fraud prevention and detection. Your organization may try to save money by not hiring a certified fraud examiner but then will suffer a lot after an incident of fraud. Realize that money is not everything. The thing that matters more is the hard-earned reputation which can easily be damaged by fraud.

8. Set an Example

Set an example by handling fraudsters with tight hands, otherwise, you may encourage others to commit fraud in the future. The penalties recommended after fraud are a civil lawsuit, termination, and criminal prosecution. Impose all three penalties severely, if possible. The employees will see that there is zero tolerance for fraud in your organization and they will face severe consequences if they go there.

9. Get Help

Don’t try to handle fraud on your own because it involves accounting and legal issues. Call a certified fraud examiner for help. They know where to get evidence and how to explain it to the legal system.

10.   Make Positive Changes

Learn from an incident of fraud and prepare the policy for detection and prevention of fraud in the future.

Conclusion

Fraud in business can result in major financial loss, wastage of time, and a ruined reputation. Fraud should be handled strictly when suspected.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

 


Internal fraud is a major problem faced by organizations today and most companies don’t even readily admit the fact that their business may be vulnerable to employee theft or fraud. Gone are the days when it used to be a rare thing. Now, it is a common activity that is causing businesses to lose billions of dollars in annual revenues and profits. According to a report published by the ACFE (Association Of Certified Fraud Examiners), organizations lose a significant 9% of its revenue due to fraud each year. This indicates that a substantial portion of annual profitability is drained due to this curse and businesses need to come up with a fraud prevention plan in order to secure their invaluable assets.

You Cannot Blindly Trust Your Employees

With right technological tools and techniques, prevention of fraud is possible. However, you need to devise an effective plan if you expect to reduce fraud or employee theft in your organization. Initially, businesses had the margin to trust their employees almost completely due to the long-termed developed faith and trust on personal and professional grounds. Now, businesses cannot trust their employees as they used to. Why? Because people have lost morality and faith and they would exploit the business they might be working in, as much as they possibly can, and get hold onto any opportunity they find.

Maintaining Effective Internal Control

Organizations need to maintain an effective internal control for the prevention of fraud. Fraud is devastating for a business, both financially and culturally. Business owners who ignore the cases of fraud in their organization will face repercussions in the shape of losing their competitive advantage, growth, and working capital. Employee fraud has many forms and there are roughly three major categories that reveal how employees steal from their company. They include corruption, asset misappropriation, and financial statement fraud.  If an organization is successful in maintaining effective internal control, they can expect to greatly reduce employee fraud in their organization. The prevention of fraud is not as hard as it seems; it takes awareness of your staff’s mentality and the proper practices that prevent it from happening.

Poor Internal Control Is Costly To Businesses

Using the right tools and techniques can significantly reduce the percentage of employee fraud. Prevention of fraud is only possible when it is done right. Poor internal control is one out of four primary reasons due to which any fraud occurs. The other three include collision between employees, collision and personal rifts between employees and third parties, and management override of internal controls. If you expect to prevent fraud and eliminate the risks of fraud, you need to design an internal control that can deter fraudulent activities.

What Comes Under The Banner Of Effective Internal Control?

Prior to creating an effective plan for the prevention of fraud, you need to define your company’s culture and the way your business is governed. You need to perform an assessment of each and every employee in order to know them well. Educate your employees by integrating various interactive methods in which every employee must participate. Once the training is finished, continuously remind your staff to uphold standards that will help ensure continuous growth and success. Lastly, you need to document everything clearly, without errors, to make sure that the code of conduct and theft prevention policies are well understood by employees.

Building strong relationships and communication with your employees is extremely important when it comes to a company’s growth and success. The prevention of fraud can be possible when you maintain strong interactions and communication with your employees. Moreover, segregation of duties is one way by which you can track your employee’s productivity and performance. The employees who have the courage to steal from you can be traced easily when roles and duties are assigned respectively. Bookkeeping records can reveal who is stealing from you; it just takes effective monitoring and tracking.

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About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

CONTROL word cloud, business concept
No matter how big or small your business may be, employee theft will continue to eat a significant portion of your annual revenues and profits. It is something that has been around since the beginning of times. No one can deny the fact that businesses are vulnerable to fraud, especially SME entities who suffer excessively huge losses of fraud. SMEs need to ensure effective internal controls in order to create a favorable environment for yielding profits. Although, you may believe that cases of fraud are found in large-scale companies with thousands of employees in multiple locations. The truth is, SMEs are victimized and employees tend to steal from smaller businesses more frequently than larger organizations.

SMEs Are Vulnerable To Employee Fraud

Today, organizations have mixed opinions on how to deal with cases of fraud. Some are very proactive and instill policies for prevention; some are lenient and show more sympathy towards their employees on personal grounds. According to studies, organizations with fewer than 100 employees are more vulnerable to employee fraud as they account for the highest percentage of fraud. The thing is, SMEs are more inclined towards generating sales and profits and care less about maintaining effective internal controls and reviewing their bookkeeping records with a fine tooth comb. Each year, SMEs lose billions of dollars in annual revenues and profits worldwide, which bears testimony to the fact that employee fraud is inevitable and it hurts a business’s integrity.

Fraud Can Be Prevented

With innovative tools, techniques, and practices, fraud prevention and detection is possible. You must choose the right prevention option by making a comprehensive analysis of your business. Obviously, no one knows a business more than its owner and owners have the potential to change the fate of their company. They know their business’s strength and weaknesses and can possibly turn things around in their business’s favor. In organizational setups, SMEs have scarce resources in which they need to ensure whether everything is in control or not. Business owners need to know how to create and maintain internal controls by implementing a properly designed fraud prevention and detection plan with limited resources.

Why do Employees Steal from their Company?

There are primarily two reasons why employees get  involved in fraudulent activities in an organizational setup; when they are undervalued and underpaid. These two things work as fuel for them and, if it’s not there, the employees feel discouraged, demotivated, and left out. Moreover, you can only expect your employees to work efficiently if both of these things are ensured by the owner. When these two things aren’t there, the owners can expect their employees to be involved in fraudulent activities through various means. Organizations can catch up with their fading fate by creating, implementing, and practicing the proper internal controls.

Corruption Ruins the Business

Moral and financial corruption eats up an entire organization, slowly and gradually. Diminishing profit margins and draining profitability leads a business towards a complete disaster. Owners who are eager early on to get their organization’s operations back to normal may have a slight chance of success. But, those who react when the time has already passed achieve very little or no success at all. Some organizations choose to hire professional managers who can turn things around on their organization’s behalf. This seems like a smart choice, especially for those who are good at yielding sales and profits but lack managerial skills to maintain the right internal controls.

Maintaining Effective Internal Controls

Organizations need to prevent and detect fraud in a way that others working in the company aren’t bothered. By slightly modifying the existing organizational processes, companies are often able to overcome business challenges in an effective manner. Sometimes they are successful, sometimes they fail. It all depends on how well you leverage your internal controls. For a typical company, separation of duties is a critical tool that helps evaluate performance on an individual scale. This way, you get to know whether your employees are stealing from you or not and, if they are, you will know who is stealing!

Additionally, you need to make sure that your employees abide by the policies and procedures. Encourage your employees to document each and every thing for you to know what exactly is lacking or where the problem is exactly. These are some of the ways by which you can maintain a proper internal control in your organization.

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About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

 

Are You Covered?

The Association of Certified Fraud Examiners (ACFE) ‘Report to the Nations on Occupational Fraud and Abuse’ published its Global Fraud Study in 2016
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According to the Executive Summary by ACFE Global Fraud Study in 2016, a typical organization loses 5% of revenues in a given year as a result of fraud. Corporations of different sizes incline to have different fraud risks. In big corporations, corruption was predominant, while check tempering, payrolls, and stealing were twice more common in small businesses.

Frauds are often more common in small businesses as they lack special security checkups and foolproof systems. A small business may have installed accounting software, but the accounting software for small business may lack many functions reserved for software purchased by big corporations. Even though a good accounting software may have been purchased for a small-sized business, there still remains a chance of fraud. Usually, in a smaller company, a single person is trusted for operating accounting software and business bookkeeping.

Focus on these areas in a small business to minimize small business frauds:

  • Expense
  • Procurements
  • Payments

Top Areas to Monitor for Employee Fraud

Frauds are made through these channels:

1.  Frauds through Purchase Order
2.  Misuse of Business’ Credit Cards
3.  Frauds on sales and receivables
4.  Payroll Frauds
5.  Information systems and critical data stealing

1.  Frauds through Purchase Order

  • Employee purchases goods that he intends for personal and private use.
  • The employee makes a vendor’s account in which he pays fraudulent invoices.

Frauds through purchase orders can be traced by checking if the same person makes purchase orders and approves payments for those orders. It can also be detected if there are various split purchase orders within an allowed limit.

 

2.  Misuse of Business Credit Cards

  • Many businesses give corporate’s credit cards to its employees when they are going on a business trip. When the credit card bill arrives, do not blindly sign the bill. Before signing, check the outlets where this card had been used. Your business money should not be used for any unapproved items or excursions.
  • Many frauds fall into a double billing fraud type. An employee uses the business credit card for making an expense. Then he again submits the receipt for the same expense to reimburse the money. There should be a strict procedure to keep a check and balance on double billing frauds.

3.  Frauds on Sales and Receivables

The employee develops a personal contact with the sales representative and gets a commission on that.

Fraud tests can spot customer accounts which are receiving unusual discounts, customer’s account having higher memos, customer’s account with high credit terms, and when the shipment address of sales is same as employee’s.

 

4.  Payroll Frauds

Payroll frauds can be of the following types:

  • Payroll of a person who was terminated or died still exists in payroll section
  • Payroll of a person who does not exist at all
  • Adding overtime payments in the payroll without permission or reason

 

5.  Information Systems and Critical Data Stealing

Employees can steal and misuse critical data from the information system of a company. They can sell the customers’ data and information related to address and contact numbers to a third party.

To check for any data stealing from your business database, run specific tests on the computer system. The test will detect the accounts who had accessed the database from their company’s accounts. Check out if this employee had the authority and permission to log in to company’s database.

If an authorized employee makes frequent logins to the system and there is no such apparent need, monitor closely. Run tests to access if any data was copied and moved.

There is a special software which runs discretely to detect emails carrying critical and important data of the company.

Conclusion

No business is immune to fraud or theft. Employers should closely monitor the activities of their employees. They should focus on the above five areas that act as a channel of fraud by the employees. Employers must strictly monitor the bookkeeping, especially, to prevent fraudulent activity.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.