If you do not implement sound internal controls and you fail to be vigilant in monitoring employee behavior, you’re probably a sitting duck for fraud. Fraud can be expensive and damaging in many ways. Not only can it erode profit margins and shareholder value, but fraud can also adversely impact company morale and productivity. The ultimate cost of fraud can be enormous!
Causes & Types of Fraud
Fraud can be perpetrated by employees, managers and vendors in a variety of ways. Among the most common methods include forgery of signatures, stolen or misused credit cards or checks, unauthorized purchases or payments, or the theft of cash.
Human nature and complacency are the primary causes of fraud. Managers tend to become too trusting because they believe they’ve hired honest people, not realizing that individuals can change over time for a number of reasons, including major changes in their personal lives or dissatisfaction with the company.
Opportunities to commit fraud often arise from poor internal controls, too much trust in individuals, inadequate training, not implementing controls thoroughly, carelessness, apathy and simply not paying attention.
Possible Signs of Fraud
Here are a few red flags that might indicate there’s a problem and this is only the tip of the iceberg!:
- Managers performing clerical duties
- Purchasing agents that pick up vendor payments rather than having them mailed
- Staff that rewrites records under the pretense of neatness
- People that behave differently with their peers than they do with management or have abrupt mood swings and displays of highly emotional behavior (“Complainers”)
- Vendors without physical addresses
- Missing shipping/ receiving / purchase order documentation or excessive photocopied documents when originals are expected causing double billing
- An employee with custody of assets, most typically cash and/or inventory who never takes a day off or vacation
- Employees that are always in early and always stay late might indicate something other than the model employee you may think they are
- Staff with gambling or drug/alcohol abuse issues or lifestyles beyond their apparent means
- “Irregular” inventory counts or excessive/erratic inventory slippage
Fraud Prevention & Investigation
Prevention is the best way for a company to avoid fraud. To stop fraud before it occurs, it is important to create a fraud-hostile environment by providing a heightened sense of awareness. If you suspect that your company has a problem with possible fraud, please contact me so I can help investigate your concerns.
Contact Debra For Fraud Consulting
Contact me for a complimentary one hour consultation on fraud protection and prevention.