Several Strategies Available to Fight Fraud

As a certified fraud examiner, I’ve investigated numerous fraud cases from minor cash theft to embezzlement cases exceeding $1 million with the potential to bring down entire organizations. Fraud is one of the most detrimental situations any business, especially small businesses, can face.

The Association of Certified Fraud Examiners 2012 Report to the Nation, which studied the impact of occupational fraud, found that the smallest organizations suffered the largest median losses. This is also significant when you consider that nearly half of victim organizations will never fully recover fraud losses.

Small business vulnerability to fraud is largely due to lack of resources and therefore lack of anti-fraud measures and processes. However, that doesn’t have to be the case. There are some measures small business owners can implement at little to no cost to help decrease vulnerability to fraud.

Employing some, or all, of these strategies could ultimately save your small business.

1. Set the standard.
Your company’s culture begins at the top leadership level and should be reinforced with every new person and at every opportunity. Educate employees on the ethical standards by which you do business and include fraud training as part of employee orientation, including what it is, how it’s detected and what to do if it’s detected.

2. Make it hard to steal.
While internal checkpoints aren’t always easy to implement when you’re a small business, there are a few checks and balances you can implement to help prevent or detect fraud:

  • Segregate or rotate some accounting functions among select employees making it harder to hide information.
  • Outsource certain accounting functions to a third-party provider and save on the cost of hiring an additional employee.
  • Arrange for random, unscheduled simple audit checks to catch suspicious activity.
  • Have bank statements mailed to your home or a post office box and review them before delivering them to your bookkeeper. Just knowing you get the statement first should be a strong deterrent for any fraudulent activity.

Don’t be fooled by a clean background.

Do not assume an employee with a clean background is not capable of fraud. The ACFE also reported that 87 percent of fraudsters were first-time offenders with clean employment histories.

A financial crisis or major expense can tempt even the most honest employee to commit fraud if the opportunity exists. Look for signs of changes in behavior,
extreme control issues, extravagant purchases or new financial burdens if you think an employee may be stealing.

3. Require vacations.
Besides the fact that time away from the office is imperative to our health and wellness, employees who are involved in fraudulent activity are more reluctant to take time off for fear of their dishonest behavior being uncovered.
Require employees to use allotted vacation time and let them know their co-workers will help complete their job duties while they are away.

4. Make reporting fraud safe and easy.
The ACFE reported that the majority (43 percent) of occupational fraud cases were detected by a tip from an employee at the victim organization.

While external audits help determine the financial health of your business, they can be expensive and are not the most effective in detecting fraud. In fact, external audits were responsible for detecting fraud in only about 3 percent of the cases studied by the ACFE.

Besides you, your employees know your business best and may even know the daily workings better than you. Of the fraud cases reported through a hotline in the ACFE’s study, nearly half were reported by an employee of the victim organization.

Fraud tip hotlines are an easy and inexpensive way to provide employees a safe and anonymous avenue for reporting suspicious activity.

Finally, the best way to prevent fraud is to be aware and privy to your business’s financial matters.

Leah Wietholter, a certified fraud examiner, is founder of Workman Forensics and ReportFraudOk.com.

Tulsa World

PDF: Several Strategies to Fight Fraud (Leah Wietholer, Tulsa World)