10 Essential Tips for Preventing Corporate Fraud

Strong internal controls can make your business a less attractive target

Posted by Timothy Dimoff in Code of Conduct, Ethics & Compliance, Fraud, Human Resources on February 4th, 2013

Small businesses are often targets of fraud. According to the American Institute of Certified Public Accountants (AICPA), small and midsize companies suffer a greater share of fraud losses than do larger companies.

Fraud Prevention Program

Experts estimate that companies lose five to six per cent of their annual revenue to fraud, so a comprehensive fraud prevention program is essential. This consists of three things:

  • education
  • investigation
  • proactive prevention

Employees are the most likely to report misdeeds, so you want to give them the knowledge to help the company as an integral part of your fraud prevention program. And while fraud prevention efforts are designed to stop employee fraud, investigations of suspected fraud should deter other employees from committing fraud.

Learn about i-Sight’s Ethics and Whistleblower Hotline

The bulk of your company’s fraud prevention efforts should be focused on the creation and implementation of proactive preventive techniques, including internal controls, policies, and procedures that are specifically designed to prevent fraud.

10 Ways to Prevent Fraud

FREE Investigation Report Template

Prepare thorough, consistent investigation reports with our free report template.

Download Template
One of the best ways to develop policies and procedures that are effective in prevention corporate fraud is with the assistance of an experienced anti-fraud professional who has investigated hundreds of frauds to develop the most relevant and most effective anti-fraud controls including:

  • Establish clear and easy to understand standards from the top down. Have an employee manual that clearly outlines these standards and keeps the rules from becoming arbitrary.
  • Always check references and perform background checks that include employment, credit, licensing and criminal history for all new hires.
  • Secure physical assets, access to data, and money at all levels including monitoring and using pre-numbered checks, keep checks locked up, have a “voided check” procedure and never sign blank checks. Review all disbursements regularly.
  • Segregation of duties of employees. Divide activities so one employee doesn’t have too much control over an area or duty. Separate important accounting and account payable functions. Small-business owners and managers should review every payroll check personally. The person who has custody of the checks should never have check signing authority. The person opening the mail should not record the receivables and reconcile the accounts.
  • Proper authorization of transactions, ensuring that employees aren’t exceeding their authority.
  • Independent checks on performance, using audits, surprise check-ups, inventory counts, or other procedures to verify compliance with policies and procedures, as well as accuracy.
  • Instill an anonymous reporting mechanism, such as an employee fraud hotline.
  • Small-business owners should control who first receives the bank statements and other sensitive documents. Consider a separate post office box for the purpose of receiving bank statements, customer receipts or any other sensitive documents.
  • All account reconciliations and general ledger balances should have an independent review by a person outside the responsibility area such as an outside accountant. This allows for reviews, better ensuring nothing is amiss and providing a deterrent for fraudulent activities.
  • Conduct annual audits to motivate all bookkeeping-related staff to keep things honest because they can never be sure what questions an auditor is going to ask or what documents an auditor may request to review.

While no company, even with the strongest internal controls, is completely protected from fraud, strengthening internal control policies, processes and procedures will go a long way towards making your company a less attractive target to both internal and external criminals.

 


Timothy Dimoff
Timothy Dimoff

President, SACS Consulting & Investigative Services, Speaker, Trainer, Corporate Security Expert

Timothy A. Dimoff, CPP, president of SACS Consulting & Investigative Services, Inc., is a speaker, trainer and author and a leading authority in high-risk workplace and human resource security and crime issues.
He is a Certified Protection Professional; a certified legal expert in corporate security procedures and training; a member of the Ohio and International Narcotic Associations; the Ohio and National Societies for Human Resource Managers; and the American Society for Industrial Security. He holds a B.S. in Sociology, with an emphasis in criminology, from Dennison University.

Visit Website