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Fraud Watch: Keeping Your Finger on the Pulse of Your Company
The Little Things You Can Do to Keep Fraud at Bay

Oct 1, 2008

This is the fourth of a four-part series discussing areas of your business you can examine to determine whether fraud is taking place.

Fraud can drive an otherwise successful company right into the ground. Many business owners don't give fraud the attention it deserves – until it's too late.

The most effective fraud deterrent you can employ now starts with your employees. They need to know, understand and fear the consequences of stealing from the company. Make sure every employee realizes that if they steal from the company, they will be caught and they will be punished. How? Aggressive deterrence, early detection and effective response.

Aggressive Deterrence

Create an environment of aggressive deterrence, which should include, at a minimum, a corporate fraud policy. An effective fraud policy must:

• Encourage employees to do the right thing if they discover or suspect fraud.
• Create a high-integrity corporate environment to keep honest employees honest.
• Respond consistently to each potential fraud situation to reduce the potential of being sued by employees who feel they were treated unfairly.

An effective corporate fraud policy should:

• Forbid illegal activity under all circumstances.
• Designate who is responsible for investigating suspected fraud.
• Require any employee aware of an ongoing fraud to immediately notify a superior or those designated to investigate suspected fraud.
• Communicate that all instances of suspected wrongdoing will be fully investigated.
• Ensure that suspects will be treated equally despite their position or tenure.
• State that management is responsible for fraud within their areas of responsibility.
• Require management to fully cooperate with law enforcement.
• Prohibit the cover-up of any detected inappropriate activity on behalf of the company.
• Forbid any form of witness retaliation.
• Tell all employees what is acceptable behavior and what isn't, and what to do if they see something unacceptable.

Early Detection

The Association of Certified Fraud Examiners' 2008 Report to the Nation on Occupational Fraud & Abuse reports that the median length of time a fraud scheme goes undetected is 24 months. That's two years of your hard work out the door in someone's pocket. The following easy changes can help ensure early detection of fraud:

• Subscribe to a fraud tip hotline. During investigations, another employee often says that he or she "knew something was going on," but didn't know what to do or who to approach to discuss their suspicions. According to the ACFE's report, tips are the most effective means of detecting fraud, so it's important to give your employees a formal method to report a suspicion.
• Investigate anything that looks suspicious or just feels funny. The discovery of just one fraudulent transaction just might lead to further discovery of a whole series of dirty dealings.
• Require employees to take an annual vacation and have another employee perform his or her job duties during the absence. If fraud is going on, there's a good chance the fill-in will notice.

Effective Response

If you discover that Sally Bookkeeper is stealing, consult with your legal counsel immediately, and remove her from company property as soon a feasible. Do NOT terminate her employment - instead, suspend her, with or without pay, during the investigation. If you terminate her, she may be less likely to cooperate with the investigator. But, if the investigation shows that fraud did occur, she should be terminated immediately.

No company, or its assets, is completely safe from fraud. But by implementing these simple tips and creating a culture of no-tolerance, you can be sure that an employee will think twice before stealing your company's assets.

This article was originally published in The Rea Report, fall 2008 issue.

Note: This content is accurate as of the published date above and is subject to change. Please seek professional advice before acting on any matter contained in this article.

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