Is Your Company Safe From Fraud?
Fraud is concealed by its perpetrators, and that makes precise
quantification of fraud losses difficult. Billing/Invoices Perpetrators may induce victim companies
to unknowingly issue fraudulent payments for goods or services
that they have not received. These schemes can involve shell
companies, double payments of an invoice and personal purchases.
However, based on the most recent statistics from a 2.5-year
study by the Association of Certified Fraud Examiners, the
frequency and average loss per occurrence for reported cash-based
fraud schemes indicates that the average business loses 6
percent of its revenue due to fraud. Being aware of the most
common fraud practices could prevent the unsuspecting business
owner from becoming a victim. Be on the lookout for signs
of the following schemes if or when you suspect fraud at your
Check Tampering Most commonly, the perpetrator prepares
or modifies a fraudulent check payable to himself. Be on the
lookout for forged markers, forged endorsements, altered payees
and concealed check schemes.
Payroll Payroll tampering can include timecards showing
inflated hours or salary, phantom employees and inflated commissions.
Expense Reimbursement Audit expense reports for inflated
numbers, personal expenses and multiple reimbursements for
the same expense.
Register Disbursements False transactions recorded
on a register tape can be passed off as legitimate to justify
the removal of money. These transactions can include false
refunds or voids.
Skimming Removal of cash from an entity prior to
its entering into an accounting system is known as off-book
fraud. It is often difficult to detect.
Cash Larceny The intentional taking of an employer's
cash or checks without the consent and against the will of
the employer is cash larceny. This is theft of money that
has already been recorded.
While skimming was the most frequently reported scheme in
the survey and is also the most difficult to uncover, invoice
fraud had a relatively high frequency and the most significant
average loss. As a group, the disbursement frauds (from billing/invoices
to register disbursements) were reported twice as frequently
as skimming and cash larceny combined.
Researchers have concluded that there are three elements that
must be present for a fraud to be committed: financial pressure,
perceived opportunity to commit and conceal the dishonest
act and some way to rationalize the dishonest act. Since businesses
cannot control individual pressures or rationalizations, what
can be done to combat fraud? The only element of the fraud
triangle that a business can impact is the opportunity to
The costs of fraud and abuse can be reduced by preventive
action beginning with these basic steps:
Set the Tone at the Top Employees who view their
leaders as honest people are more inclined to emulate that
behavior. The opposite is also true. Don't give employees
an excuse to be dishonest.
Have a Written Code of Ethics A written code of ethics
sets forth what an organization expects from its employees.
It can be brief or detailed, but it should set the right tone.
Check Employee References and Backgrounds Checking
references and prior employment may disclose individuals who
were at one time discharged for fraud.
Background checks are flexible depending upon the level of
hiring, but may include credit reports, criminal records,
real-property ownership and partnership and incorporation
Exercise Proper Oversight Close review of your company's
bank statements, bank reconciliation and monthly financial
statements is critical to staying in control.
Create a Positive Work Environment Committing fraud
and abuse is often a way of "punishing" an organization
for perceived workplace injustices. Creating a positive and
open work environment can reduce the motivation to commit
fraud and abuse.
No matter how careful, any company can still become a victim
of fraud. If you suspect a fraud has occurred, consult a professional,
such as a certified fraud examiner, with knowledge and experience
in fraud detection and evidence gathering. Your last line
of defense in preventing fraud is making it known that you
will prosecute the offender. The risk of being caught is an