Actions You Can Take to Help Prevent Fraud

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The 2013 Marquet Report On Embezzlement, issued in December  2014, analyzes US fraud and embezzlement cases resulting in losses of $100K or more. Listed below from the report are specific preventive strategies and tactics to address the problem of employee theft; the complete Marquet Report can be accessed here (site registration required).

  • Do not allow a single individual access to all aspects of company finances and accounting. Make sure there is a division of duties between the financial operations (especially check processing) and the accounting for financial activities
  • Regularly rotate responsibilities for accounting personnel.
  • Require accounting and financial personnel to take time off and vacations. Embezzlers often take little or no vacations to perpetrate their schemes.
  • Do not allow those responsible for cutting checks to take work home.
  • Require two signatories on outgoing checks above a certain nominal amount. One of these signatories should be from outside the finance and accounting functions. Segregate the reconciliation of all checking accounts from check processing, check authorization and check signing functions. Examine cancelled checks regularly during reconciliation and have the reconciliation process spot checked by the outside auditors. One common method of embezzlement involves the forgery of checks. Another is to have them payable to the embezzler or their personal vendors.
  • Maintain unused checks in a lockbox. Be sure all checks, purchase orders and invoices are numbered consecutively and reconcile any of those missing.
  • Conduct regular as well as random audits. Owners should take a hands-on management approach by physically spending time with the bookkeeping department.
  • Audit petty cash regularly.
  • Audit company credit card charges regularly.
  • Audit expense reports regularly.
  • Be sure each payment, electronic or otherwise, is backed up with appropriate documentation.
  • Backup financial records daily.
  • Make and reconcile daily deposits. Use a “for deposit only” stamp for check deposits. The person recording cash receipts should be different from the one making the actual deposits.
  • Bank reconciliations should be made by a different person than those that handle cash receipts and cash disbursements.
  • Know who your vendors are. Embezzlers often create phony vendors and submit fraudulent invoices for payment.
  • Examine payroll records regularly. Some embezzlers issue themselves extra paychecks and bonuses through the payroll system.
  • Investigate customer and vendor complaints promptly. If vendors are not being paid as expected, it may be a sign that the payment checks are being diverted.
  • Conduct pre-employment background checks for all personnel with fiduciary duties.
  • Conduct employee background checks on current employees on a periodic basis, particularly those in financial positions.
  • Both the HR and legal departments should pay close attention to the employee grapevine and any suggestions that someone has a gambling problem should be immediately addressed.
  • Prosecute perpetrators, creating a permanent record future employers can find.

Click here to access the full report.

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(Reprinted with permission.  Copyright ©2014 Marquet International, Ltd.)

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