Preventing Fraud by John Walczak CPA, CFE
In any organization there should be internal controls and checks and balances to prevent fraudulent activities from taking place. Here are a few that might help your company.
First, abandon all presumptions of honesty; exercise a healthy dose of skepticism to assist you in taking a critical look at the processes inside your organization. Segregate duties as much as possible. Fraudulent behavior needs motivation and opportunity to occur. If an employee needs help to defraud, then the opportunity is greatly reduced. Divide crucial responsibilities to deter fraud, such as opening the mail, making bank deposits and recording the deposits in the accounts receivable ledger. Separate check writing from check signing.
Business owners should have their bank statements mailed directly to their house and should review each statement and cancelled check. Look for checks with forged signatures, checks made payable to a vendor you do not know, missing checks and checks significantly out of order, large checks made payable to cash, vendors not on the the approved accounts payable list and vendors with post office box or apartment number addresses.
Require two signatures on checks over a set amount. Lock up blank checks and check signature stamps. Treat them just like a stack of $50 bills. Don't sign blank checks. Deposit cash and checks on a daily basis. Monitor your accounts receivable closely, looking for customers with late balances or unexplained "credits" to their accounts.
Every employee should take a vacation for one week at least once a year. Consider rotating accounting duties amongst the accounting staff. Not only will this discourage fraud but will help cross train your staff so that no one becomes indispensable.
Compare payroll checks with the employee records, hand out paychecks personally and investigate any checks issued for individuals not present. Review your payroll records for employees with duplicate social security numbers or addresses, no federal or state income tax or 401(k) plan withholdings.
By following these ideas and keeping a watchful eye on what is happening inside your company, you can greatly reduce the chances of an employee helping himself to your hard earned money.
