Tips for Fraud Prevention

In today’s world, fraud is everywhere. In business. At the bank. On the playing field. And unfortunately, it’s even in the schools. You’d like to believe it’s not happening in your school district (and hopefully it’s not), and you want to feel like you can trust your team. But the fact of the matter is it’s your management’s responsibility to develop strong internal controls to prevent fraudulent activity and to implement procedures to help detect fraud.

Fraud Prevention Strategies

While it’s customary to follow up on “red flags” raised by your system(s) of internal controls, there are other techniques that you can easily implement that will help you detect fraud that may be circumventing your system of internal controls. You can reduce the risk of fraud by developing nontraditional detection or prevention techniques and applying them to your internal controls. Here are four such tips:

  1. Perform an analytical review. You can do this using both financial and nonfinancial data. For example, come up with what you believe is a reasonable amount of supplies purchased during a given period and compare that number to actual spending. Or dig into actual versus budgeted fees and question anything that is lower or higher than expected. Or look at why consulting or IT expenses are out of line with an expected amount. Be sure to investigate any unanticipated results.
  2. Review unusual transactions. Solid internal controls will help prevent fraud in the workplace. However, these controls could be circumvented. If you see adjusting entries made to balance accounts in the ledgers, or even in outside department ledgers or accounting records, then fraud may be occurring. It’s critical that these ledgers are reviewed rigorously by management in order to justify the validity of these adjustments.
  3. Dig deeper and review any unusual documentation. This is always a red flag of potential fraudulent activity. Oftentimes, if you have little or no details in the documentation, this may be a strong indicator of fraud. Red flags may include checks to vendors that are cashed rather than deposited, invoices with the same invoice date as the purchase order date, or goods purchased from a vendor that normally doesn’t provide such goods.
  4. Don’t ignore suspicious comments or gossip around the office. You may want to ignore comments made by employees or about employees who have ulterior motives (i.e. disgruntled employees, jealous co-workers). But some of the best information comes from whistleblowers or “innocent” comments made by other employees.

By maintaining professional skepticism and implementing a layer of monitoring controls, you and your organization can reduce the risk of fraudulent activity from happening. If you suspect fraud is occurring or if your internal controls can be tightened, let us help.

This article was originally published in Money Matter$, a Rea & Associates enewsletter, 3/5/2014.

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