Reading the news, you may come across a story of fraud occurring within a company; however, do you consider the potential of fraud occurring within your company? As technology evolves, the capabilities of a fraudster improve if we have not implemented the proper controls. The controls and procedures put in place a few years ago may need to be strengthened to current technology.
To begin the thought process, you need to overcome the trust and tenure of your employees. From the stories you hear, it only takes an opportunity for an individual to commit fraud; no matter the perceived moral opinion of the individual.
Most fraud within a company happens when an employee steals money. The company may have policies in place to require management to approve both disbursements and bank reconciliations, but are the procedures actually being performed as they were designed? Management should be reviewing the invoice and any other additional support for the expenditure in detail, prior to signing the check. Also, agree the payee, address, and amount on the check to the invoice. On the bank reconciliation, you may see two checks to the local utility company, when you would usually expect only one per month. Another example is seeing disbursements to an unfamiliar vendor. Any concerns should be asked to the proper individual who authorized the expenditure.
To combat potential fraud, most financial institutions offer positive pay for disbursements to eliminate check fraud. Positive pay is an automated fraud detection tool that matches all the information of each check presented for payment against a list of checks previously authorized and issued by the company.
As far as incoming receipts have someone outside the accounting department open the mail and maintain a log of all the receipts received each day. This log should be used during the review of the bank reconciliation to verify the receipts were properly recorded in the accounting software and to make sure that receipts received by mail were actually deposited into the company’s bank account. If any cash is received, ensure a two-person system to acknowledge and document such collection.
If capable, cross train staff to perform other job functions. This would provide your company the ability to rotate responsibilities, especially if you have concerns of potential fraud. Questions and recommendations may result from a new perspective of an employee performing the procedure. Cross training of staff also allows for vacations to be taken by your accounting staff. Vacations should be a weeklong thereby interrupting the fraudster’s system of being able to commit the fraud and having it go undetected.
Lastly, as you strengthen your controls and procedures, confirm with your human resources department that a background check is performed prior to hiring any accounting or administrative candidate. Red flags include personal bankruptcy within the last five years; lawsuits filed to prevent foreclosure of assets by the candidate or suits filed to demand payment against the candidate; and felony or serious misdemeanor convictions, including check fraud.
Some of these suggestions may already be in place at your company; others may be considered appropriate to implement, and some may not fit due to cost constraints or other limiting factors. To be ahead of the next occurrence of fraud being mentioned on the news being your company, review your procedures and challenge the process. Cover any potential loophole in your procedures and continue to review your procedures on at least an annual basis.
If you already have concerns of fraud within your company or would like an outside perspective on your current procedures, please reach out to us at ADKF.