Thought you knew your accounting department? Did you place trust in them to handle corporate assets? If the answer to these questions is yes, be aware that the accounting department is the most common location for fraud inside your organization, this according to the Association of Certified Fraud Examiners Report to the Nation.
Even though internal controls are in place, the report states, they often are not enforced or insufficient to keep occupational fraud from occurring.
Here are some helpful tips and best practices from the Fraud Association to help keep your organization protected from fraud:
1. The “perception of detection” is the best deterrent. Those who perceive that they will be caught committing fraud are less likely to commit it. Segregation of duties are very important (the idea that someone else is checking), but small businesses often lack the personnel to effectively do this. One idea is to have the bank statement delivered unopened to the owner. The owner can examine the deposits for reasonableness and look for checks paid to inappropriate parties. All employees should know that the boss is going to go through the mail as this also will help to deter fraud.
2. Organizations with limited resources should focus their control investments on the most cost-effective mechanisms and according to the Association’s Report, over 40% of frauds are uncovered by “tips.” Therefore, setting up a hotline and setting an ethical tone for their employees is a great investment of resources. If employees are taught that fraud costs jobs, raises, reputations and individual dignity, they will become stakeholders in fraud prevention.
3. External audits detected fewer than 5% of frauds according to the study. One of the main reasons is that many clues can be behavioral not necessarily financial. Employees will have a better understanding of who is living beyond their means, which employees have financial problems, or who has a bad attitude toward their employees. The report did indicate that frauds at audited companies were both caught more quickly and caused smaller losses than those at unaudited organizations. This is because an audit increases the perception of detection and honest employees felt empowered to speak up about co-workers.
As a Certified Fraud Examiner (CFE), I cannot overemphasize how great a resource this report is for organizations looking to reduce the risk of asset misappropriation. If you would also like another excellent tool, contact me and I will send you a useful Fraud Checklist.