Posts

fraud prevention detection - Complete Controller

Employee fraud or left is a severe organizational issue impacting American businesses of all sizes, in all sectors. Gone are those days when the magnitude of theft used to be minimal, and companies could recover their losses and get back on track at the same pace. Now, recovering from financial injuries, especially when companies have lost their market share, is extremely tough. The impact of employee fraud yields devastating results as it hurts companies financially and culturally—it also causes lasting reputational damage that is hard to recover. So, companies devise effective fraud prevention, detection and response plan, and strategies to keep the company going in the right positive direction. Check out America's Best Bookkeepers

You Should Always Track Your Employees—Even If They Are Highly Entrusted Ones!

On the other hand, companies need to get out of an illusion that their entrusted employees are loyal. According to a recent study concluded by a group of Harvard students, your trusted employees are more likely to steal from you than your new hires. Moreover, it revealed that 80% of employees in a typical organization are likely to steal from you, given the right circumstances. This revelation indicates that companies need to monitor and track their employees’ habits, changing attitudes, and evaluate employees’ commitment to job roles to expect to reduce specific organizational threats related to employee fraud. There are tools and techniques that owners can integrate into their organizations to know who is stealing and who intends to take from you. 

Hire A Professional Manager, If You Lack Risk Management Skills!

As a business owner, you must create transparent processes so that your employees are aware of repercussions before committing fraudulent activities. If the employers in your company can’t do it by themselves, then they can hire the expertise of professionals who could investigate the loopholes in the company and recommend possible tools and techniques for fraud prevention. Fraud or crime investigators have superior knowledge and know the art of turning things around for the company. The recommendations can prove fruitful and in a possible recovery of the company. Check out America's Best Bookkeepers

Effective Internal Control!

So, it’s all about maintaining adequate internal control. If you can control your employees, you can witness significant results in more excellent reputational value and higher financial returns. Although your employees are your real assets who have the potential to turn things around for the company, so if you can control your employees, then you can control the success of your company. For fraud prevention and detection, you can use fraud detection software, bookkeeping and accounting software, install CCTV cameras, and much more. Furthermore, you need to evaluate and notice your employees’ behavioral changes and spending habits.

Prevention of fraud–analysis

Businesses can’t survive in the market for long if their financial statements and cash flow are negative. This negative cash flow results in the company’s demise and business becoming a part of history. For fraud prevention, you need to improve your internal controls by implementing continuous auditing and monitoring. This auditing indicates that accurate financial tracking can produce the right results, and businesses need to make their fraud prevention intentions right for yielding positive future returns for the company.   Check out America's Best Bookkeepers

Fraud–Once Detected, Then What?

Once the perpetrators get caught and have physical evidence of fraud, you need to generate the right response or effective treatment for setting up an example for your entire organization. The culprits could be handed over to the police, pursued in court, and treated as per your company’s rules and policies. No matter what, you should never ignore employee fraud, as you may never find yet another chance to catch the culprit. According to a study, fraud prevention is possible only if a company has a habit of generating a positive yet quick response to employee theft. Trust me! This issue should never go unattended and must be resolved and handled rightly.

What else?

The primary purpose of launching a business is to earn a profit, and if there are disruptions in monthly profits due to employee fraud, you cannot expect to achieve your business goals and objectives at large. Fraud prevention is not that tough; all you need to do is hire the right practices and exert full internal control to ensure success.

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service 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, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers
blocks of fraud prevention - Complete Controller

Fraud Prevention Is A Must!

An employee or organizational fraud is causing severe troubles for companies around the globe. Small business startups to high-tech business giants face fraud. There is no denying that it is a menace that is stemming businesses from growing at a projected pace, restricting them to grow and expand their business operations both locally and globally. Unfortunately, every company, regardless of the size, type, and location, is affected by employee fraud both internally and externally. We may believe our in-house employees and stakeholders are loyal to our business and work to benefit the organization, but that is not true. Trust is not a control, and loyalty is something that is often no longer valued. 

Fraud Prevention and Its Sad Realities Check out America's Best Bookkeepers

Businesses lose a large amount of money because they fail to take matters into their own hands. No matter how entrusted an employee may be, you can never judge him/her. As it is said, “never judge a book by its cover no matter how promising it may sound.” According to reports published by ACFE (Association of Certified Fraud Examiners, Inc.), organizations typically lose a significant 8% annual revenue to employee fraud and theft. This percentage indicates that fraud prevention is critical to reducing the loss. So, organizations need to develop effective prevention strategies and keep a plan in place to prevent fraudulent activities in your company and initiate wise moves to recover losses once the fraud is confirmed.

What Are Three Major Types Of Fraud?

A large amount of fraud still goes undetected, restricting companies from expanding their business operations. It also poses a threat to annual profits. It creates trouble for you to track and monitor your finances. There are numerous types of fraud that squeeze the profitability of the businesses. They are in three major categories; corruption, misappropriation of assets, and financial statement fraud. Misappropriation involves the exploitation of an organization’s resources by an employee. Corruption includes when an entrusted employee uses his/her influence to steal sensitive data of the company, violating their duty for bringing the data to their benefit. Financial statement fraud includes omitting or intentionally manipulating the organization’s financial reports.  Check out America's Best Bookkeepers

Fraud prevention

Businesses need to realize that fraud is the major hurdle that prevents them from growing. Luckily, there are a wide variety of ways by which you can minimize fraud incidents. What you can do is implement the right procedures and controls for bringing things to your benefit. So, this shouldn’t be surprising for anyone to understand that fraud prevention is the first step towards ensuring a business’s long-term growth and success. So, here’s is what you can do:

Know Your Employees Check out America's Best Bookkeepers

Those who steal from you are indeed smarter than you and your imagination. Typically, before setting the trap, fraudulent employees build a reputation of honesty and loyalty to the business. This reputation often prevents suspicion of any unusual behavior in their attitude, and this is where it all begins. Fraudsters usually target that area of business where you have the least control of yours. So, it is ideal to know your employee and maintain direct control over your bookkeeping and accounting records for making business assumptions or decisions. Before hiring new employees, you need to do a reference check for each individual employed in a key position such as bookkeeping, accounting, inventory manager, etc.

Create Anti-Theft Policy and Stick with It

Veterans say that creating an anti-theft policy helps your efforts to fraud prevention. There would either be one or two individuals in any business who would-be fraudsters. Not every employee steals from you. Detecting and preventing fraud can be challenging for you, but it is certainly not an impossible task. Once fraud prevention tools of the trade are in place, the chances are that you will catch that stealing employee. The stealing employee must be brought to justice instead of your company’s anti-theft code and likely be kicked out of the company or handed over to the police for recovering losses.

 

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service 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, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers

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.

 

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
.
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.

 

Employee theft prevention - Complete Controller

Business owners often face fraud and theft each year due to their employees. The risk of fraud has increased due to the advancement of technology and the progressive development of the world market. According to research reports, organizations face a 5% loss due to fraud each year, in which internal employees committed 85% of serious fraud cases. 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.

  1. 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. Check out America's Best Bookkeepers

  1. Establish an anti-fraud policy

A documented policy that 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 that would be taken in case of fraud.

  1. 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 the pressure of unexpected audits, employee avoids stealing and fraud.

Segregation of duties

Duties of inventory management staff should be 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.

  1. Prevent Check Tampering Check out America's Best Bookkeepers

Security of blank checks

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

Check bank statements of the business

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

  1. 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. 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.

  1. 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 prices

An approved price list should also be maintained to avoid payment at higher rates. Check out America's Best Bookkeepers

Signed receipts

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

  1. Prevent Theft of Cash

Manager’s approval

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

Monthly account statements

Regular updates of customer accounts prevent fraud at this level.

Rotation of duties

Rotation of duties and sending employees on annual leaves and vacations prevent 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 bookkeeping, providing service 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, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers

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 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.

 

Macro photo of tooth wheels with COMPLIANCE, REGULATIONS, STANDARDS, POLICIES and RULES words imprinted on metal surface

Fraud nowadays is more common than ever. Small businesses are in far more danger than larger ones. Many organizations have made policies, procedures, and documents to prevent and detect fraud. By adopting effective fraud prevention strategies, the risk of fraud can be reduced. The keys to a success story to prevent fraud are strict implementation of all written policies, making all positions accountable and answerable for their actions.

Internal controls of the organization should focus on preventive fraudulent cases. Understanding of the potential fraudsters’ mindsets is important while developing anti-fraud policies. The best practices to prevent fraud are discussed below:

Fraud prevention through a Board of directors

Many organizations have developed best practices, an analytical approach to safeguard their business and have attained revenue growth by preventing loss related to fraud. However, very few organizations use a board of directors to translate this into a success story.

Here are a few roles that a BOD can play to prevent fraud.

  • Hiring a new CEO
  • Resignation of four directors and hiring of three new
  • Hiring new member for investigating
  • Education and certification of all employees
  • Refining internal controls and overhauling code of conduct

Board members should be independent and “yes men” so that they can be effective enough to question management about reporting and decision-making processes and procedures.

Employee background and behavior

While hiring employees who are directly involved in cash handling, inventory management and have accessibility to sensitive customers, always check his or her background history, employment history, legal history and code of conduct.

Provide employee space and flexibility to share his or her views and problems with you so that you can have a clue of their personality and any behavioral changes can be easily detected. In some stressful domestic problems, many honest employees can lean towards fraud, especially if organization policies are lenient and flexible against violations and misconduct.

Keep an eye on your employees, develop anti-fraud tactics and educate employees about dangers, preventive measures and also provide them with practical advice to prevent fraud. Make them vigilant and inspire them to report any threat to organizational assets and information.

Keep detailed records

Record keeping of all transactions, inventory and in & out is an integral part of any fraud prevention solution program. Fraudsters try to damage receipts or make fake inventory and transaction reports. Complete and detailed record keeping systems should exist. This system should be free of loose holes. What cash is coming in and what is going out should be recorded and payment records should be kept. An accurate financial statement is an important part of internal controls.

Solid, detailed records of all supplies and distributions of inventory should be maintained. Purchase orders should match GRNS. No inventory should be kept without paper works. The record of donations and samples should also be maintained. Random and surprise audit of inventory should be done periodically so that inventory managers couldn’t find time to reconcile and present false inventory reports.

Back up data files

There should be an effective backup system for data. There is not a particular regulation for maintaining backup data as it is to be determined by the transaction volume. This backup data stored in off-site is used to identify fraud.

Other safeguards and checkups for fraud prevention

Other important safeguards used for fraud prevention include: Hire a team of certified fraud examiners. Use CCTV cameras. Restrict access to offices, registers, cabinets and storage areas. Use passwords and firewalls for computers. Listen to others i.e. contractors, vendors, and customers. They provide a clue and indicators of fraudulent cases.

Conclusion

Fraud in business may lead to loss of your business to the extent that it may not be able to recover. But, by adopting a few simple preventative strategies, you can turn your business into the perfect success story. 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.

Embezzlement In Accounting - Complete Controller

It is a bitter reality that an employee hired by you and working with you can steal from you. Taking discounts more than allowed or carrying office supplies home often happens in offices, no doubt. But, if this stealing rises to the level of embezzlement, it is alarming for business owners. Embezzlement in accounting is not suitable for the health of your business.

Many organizations and individual business owners face employee theft and embezzlement each year. Check out America's Best Bookkeepers Embezzlement is theft or immoral actions 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,” and small businesses have the most cases and the highest losses.

Embezzlement is unavoidable and happens in small, big, profitable, and non-profit companies. No business owner wants to be the victim of embezzlement. Fraud affects the finances, image, and morale of the company. All factors decline after a fraudulent case. Most organizations adopt shortcuts for fraud prevention. These tactics only decrease the opportunity for fraud. Fraud deterrence is essential for all organizations. The bigger the organization, the more the chances of fraud increases. Frauds are as old as human history and can happen to any company or business despite the organizational structure and the number of workers. Small business managers trust their workers more than usual, and, because of that, there may be weaker internal controls.

Studies show that embezzlement is the product of certain behaviors. In the ACFE’s report, 92% of fraudsters in cases studied exhibit behavioral warning signs before being detected. So, before you instigate a full-scale witch stalk for possible fraudsters, observe and look for the understated behavioral warning signs of embezzlement in your organization.

The following are the signs of embezzlement in accounting: Check out America's Best Bookkeepers

Unexplainable records:

Any unexplained and unjustified changes in bookkeeping records are warning signs for embezzlement in accounting. Suppose there is a decrease in the revenues despite continuous payments from the business bank account. There are various pending payments for long periods without any justified reason. Unexplainable increases in expenses and a decrease in profits means that money is draining out of the company to a place where it is not supposed to go.

The over efficient workaholics:

An accountant who is a fraudster will go to any extent to hide his or her crime. More often than not, they want to work off-hours when everyone has gone home or refused vacations. They may also try to take work home. All of these activities are red alerts and need to be addressed. Keep an eye on such workaholics. In today’s busy and selfish world, some unfortunate individuals exert extra hours with bad intentions.

Unsatisfactory answers: Check out America's Best Bookkeepers

Fraudsters try to hide many documents and processes from managers and others. If any manager or others try to get involved in their work, they become offended. They give unsatisfactory explanations and answers on any fault.

They are overprotective. They work alone and don’t like any involvement or interference. Records maintained by them become inaccessible and untouchable for others. When asked questions, they become overly defensive. They know that their records will unveil their embezzlement, and their answers will be suspicious and unrealistic.

Financial stress:

If any accountant faces any financial stress in their life, they are more likely to plan embezzlement by using accounting records. Any unexpected financial loss like divorce, mortgage, or debt acts as the trigger for embezzlement. Know your employee by taking time for small discussions with them about their current situation. In this way, you can detect any sudden change in their behavior and activities.

Conclusion:

Embezzlement in accounting and bookkeeping can happen to any organization. The signs mentioned above are useful in early detection.

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service 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, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers

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.