It does not matter the size of your company, whether 10, 100 or 10,000 plus employees the potential for theft and fraud schemes exists. In the 26 years I have investigated corporate frauds company size meant little to the offender. More important was the access to funds (cash) or property which could be re-sold for a quick financial payday. Equally important was the perpetrator’s ability to gain the trust of the organization. In a small to medium size company this can have devastating effects.
The Covid-19 pandemic has escalated the need for comprehensive review of employees and financial data. In normal business operations there are checks and balances to ensure fraud is mitigated. In the current environment best practices are being replaced with quick decisions to keep the business solvent. The inherent risk of that model is if a fraud is being perpetrated the checks and balances used to identify the scheme no longer exist. Evidence which could used to prosecute the offender may also be absent. Crimes of opportunity are ripe in these times of economic uncertainty.
One thing to remember, many times these individuals are the most trusted members of the organization. Very few employees apply for a position for the sole reason of stealing from an organization. During employment, the employee becomes involved in a situation which the organization has no visibility to or control over.
To prevent an occupational fraud scheme from beginning here are some tips:
- Segregation of Duties
In every major fraud investigation, I have worked over the years every time a major loss was uncovered there was an utter lack of segregation of duties. This allows a perpetrator to act without detection for extended periods of time and in many cases allows for the destruction of documents. This segregation should include burglar alarm access, safe access rights, camera passwords and key and lock controls.
2. Unusual Financial Entries
Even in a pandemic there should be a regular review of financial statements and documents. Bank accounts should be balanced monthly. This review should include a physical inventory of goods as well. In many of the cases I have investigated the inventories artificially inflated to make the business appear more profitable than it was. This could be conducted to conceal cash thefts, misappropriation of property for resale or to trigger a bonus event.
3. Reluctance to Added Internal Controls
Employers, managers, and supervisors should be suspicious of any employee resisting the addition of an internal control. In many cases the control is designed to identify potential fraud schemes. The reluctance or non-compliance with the control should be a red flag that further review is needed. In the Covid-19 environment many basic internal controls were disregarded as employers entered business preservation mode. It is imperative these controls are reinstituted.
4. Explains Away All Discrepancies
In the thousands of dishonest employees interviews I have conducted the employee initially attempts to explain away the evidence. They intentionally deviate from established practices to achieve a desired result. When questioned in many cases they will steer the behavior to ultimately being a benefit to the organization and minimize the criminal activity. With so many employees working in a remote environment regular oversight is no longer taking place.
5. Unusual Relationship with Suppliers or Vendors
Adhere to an Employee Code of Conduct which outlines relationships with vendors. This becomes exceedingly difficult to police in a remote workforce. Pay attention to exceedingly large purchases made by employees. Home remodeling, luxury cars, expensive vacations, displaying large sums of cash are all red flags. Vendors/Suppliers may incentivize purchases with trips, cash, and free product.
7. Eliminate Sole Control of Accounts Payable or Payroll
I am sure you have heard the expression “follow the money”, when you read the newspaper or watch the news regarding a large embezzlement in many cases the person is in a position of fiduciary responsibility. It is an accountant, payroll clerk, AP associate, more than likely with sole responsibility to manage and balance the accounts. In the Covid-19 era its again more important to have an independent set of eyes on the accounts.
8. Access to a Company Credit Card
I have seen the most brazen frauds surrounding the use of a company credit card to include charging personal vacations, weekly grocery shopping and paying for inappropriate internet sites. Credit accounts should be reconciled monthly and compared against expense reports. Personal use of the company credit card should be approved by management. Unauthorized charges should be investigated promptly and if necessary, repayment made by the employee.
The pandemic has been and continues to be an issue for many businesses and industries. In each of the tips provided above the common denominator is lack of supervision and oversight. In order for companies to stay afloat and viable many have relied on technology they were unfamiliar with and didn’t understand the risks associated with its application.
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