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Don’t Wait Until You Suspect Employee Theft – Take These Steps to Prevent Fraud

Posted by Concannon Miller on Thu, Nov 5, 2015

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You may think your company is free from employee fraud and theft.

Unfortunately, it’s probably not.

The Association of Certified Fraud Examiners estimates that a typical organization loses 5% of revenues each year to fraud.

The AFCE Report to the Nations from 2014 put the median loss due to fraud at $145,000. However, more than 22% of those cases included losses of at least $1 million.

In the Lehigh Valley alone in the last five years, there has been more than $30 million in fraud losses, according to media reports.

Our firm has investigated and even testified in many fraud cases. But we prefer – and we're sure you would, as well – to help prevent fraud before it starts.

Our firm has helped many companies proactively prevent fraud by completing internal control reviews and making recommendations regarding fraud prevention practices.

Here are some steps companies can take:

  • Create a culture of honesty and high ethics: Provide employee education and training on fraud. Emphasizing high ethics also will benefit your company in many ways beyond just fraud prevention.
  • Segregate duties: Companies should segregate duties, especially for a company’s cash-conversion cycle, including paying vendors, approving vendor invoices and receipt of customer payments.
  • Cross-training: Rotate jobs so employees are cross-trained and share duties. This will prevent one employee from having too much sole oversight over money matters.
  • Ditch the rubber stamp: Using a rubber stamp to sign checks can open companies up to fraud. A rubber stamp does not allow an individual to see a difference in signatures.
  • Duplicate bank statements: Business owners should obtain a duplicate copy of the company’s bank statements sent to his or her house. Business leaders should be skeptical that the statements could be modified if they are only looking at those arriving from employees and not the statements sent directly from the bank.
  • Mandatory vacation: Fraud often can be detected when the employee who is committing the theft is not there for one to two weeks. Mandatory vacation is especially effective for employees that are part of the cash-conversion cycle.
  • Fraud insurance: We strongly recommend purchasing fraud insurance. A company we worked with got wiped out of $300,000 in about 16 months and did not have insurance. Recovering fraud losses without insurance is very challenging because the fraudster probably doesn't have the ability to repay the company. After all, why would he or she have committed theft to begin with?

Topics: Fraud

Concannon Miller’s unique, holistic and intimate approach to financial health sets us apart from smaller CPA firms with more limited resources as well as mega firms where mid-sized clients struggle for attention. Contact us here to talk about improving your business.

This communication is designed to provide accurate and authoritative information in regard to the subject matter covered at the time it was published. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.

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