Preventing Internal Fraud
The statistics are shocking. According to the Association of Certified Fraud Examiners, 38.2% of fraud occurs in privately held companies, with smaller businesses (less than 100 employees) accounting for 42.2% of victim organizations.
Occupational fraud is committed by employees at all levels, and the median loss for small companies is $150,000. In 36.2% of cases, the victim organization recovers nothing.
What's a company to do? Take action by implementing and maintaining a sound system of internal controls.
Divide duties. This is the most important fraud prevention tactic. No individual should handle any transaction from beginning to end. For example, different people should record receipts, prepare bank deposits, prepare disbursements and sign cheques.
Assign responsibilities. Designate the same duties to the same people. If something is amiss, it will be clear where the breakdown occurred.
Limit access. The more people with access to assets, the more chance of fraud. Limit temptation by keeping cash and inventory to a minimum.
Make vacations mandatory. Fraud is often discovered when an employee is away and another steps in to cover his or her duties. Be wary of employees who overzealously guard their “territory” — they may be hiding something.
Perform surprise counts. Frequently - but randomly - conduct surprise counts of assets, including cash and cheques, merchandise and storeroom inventories.
Hire external auditors. Independent, objective auditors can not only uncover fraud, they can also assess the status of existing controls and suggest improvements.
Of course a healthy work atmosphere goes a long way toward preventing fraud. Loyal employees who are engaged in the company are less inclined to harm it.
Need help setting up good internal controls? We can assist in this important fraud control measure.