Internal fraud by employees in a workplace can be catastrophic to any company, it can be life-threatening to a small business with limited resources. In Part 1, we will discuss about employee theft and fraud audit detection. Next month in Part 2 we will address prevention issues.
Who steals from employers?
According to the shocking statistics and analysis from this article, https://www.acfe.com/uploadedFiles/ACFE_Website/Content/european/Course_Materials/2012/2B_Parcher_notes-cpp.pdf, approximately 80% of employees will steal or defraud their employers with various scope, complexity and method. They can be long-time or a brand new hires. Studies have shown that long-term employees are more likely to steal from you. They could be of either gender and at any age. Some of them can often have a sense of entitlement, or harbor feelings of being under-compensated or disfavored.
What is often overlooked is the employee who works late and does not take a vacation. They are often viewed as the “best” according to the same article. Management need to be alert for signs such as these:
- Employees with external business interests
- Cozy relationships with suppliers/contractors
- Suppliers/contractors who insist on dealing with just one individual
- Rising costs with no explanation
- Customer complaints of missing statements, unrecognized transactions
- Unaudited key employees having too much control and authority
- Always working late
- Reluctance to take vacation/holidays
- Unexplained wealth or living beyond apparent means
- Marked personality changes
How frauds and thefts are perpetrated and discovered
The list of methods for stealing and defrauding an employer is endless, to name just a few:
- Inflating expenses;
- Compromising accounting books,
- Untrue customer or payroll data;
- Straight-forward theft;
- A completely unplanned attacks – An opportunistic moment;
Some of the helpful points I am highlighting below are inspired by this article: https://www.accountingtoday.com/opinion/the-importance-of-conducting-an-annual-fraud-checkup
Surprise fraud audit
When an employee is absent due to vacation, family or sick leave or purposefully sent by the company to work away from his/her usual environment, surprise audit by either outside specialists or by internal team or senior management, to independently check the accuracy and completeness of the accounting records, especially when segregation of duties is compromised.
(Ideally, the responsibility for authorization, recording and custody of assets should never be assigned to just one person, because this person could commit fraud and easily conceal it. )
An annual fraud checkup can test prevention measures if they are in place (to be discussed in Part 2 next month), as well as identify vulnerabilities for additional anti-fraud controls.
Proactive fraud detection
Internal audit, control and external audit all play their parts in the prevention and detection of fraud, nonetheless, about half of all frauds are discovered by tips or accidents.
Proactive detection can help detect risky transactions or fraud sooner and more efficiently with deliberate search for misconduct, allowing transaction analysis close to the transaction time rather than after damages are done. A significant reduction in fraud losses can be achieved through the use of proactive data monitoring and data analysis, with a program designed to actively expose anomalies, combined with surprise audits.
Combining technology such as data mining and continuous monitoring software or AI with traditional management review for reconciliations, adjustments and write-offs can identify problematic transactions and detect fraud in a timely fashion.
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