The Best Way to Avoid Fraud is to Remove the Opportunity

According to the Association of Certified Fraud Examiners (“2012 Report to the Nations”) – Most fraud was committed by a first-timer with a clean employment history.  The longer the employee tenure, the greater the financial loss was to the company.   The majority of all fraud situations occur in the following areas – accounting, operations, sales, executive/upper management, customer service, or purchasing.  Common fraud schemes involved billing, check tampering, and skimming and expense reimbursement.  Frauds lasted a median of 18 months before being detected. (http://www.acfe.com/rttn.aspx)

It is not uncommon to hear about an owner of a business not knowing a long term employee was stealing until the person was out of the office for a prolonged period.  Revenues and profits seemed to increase without a discernible increase in Sales.

Following are seven strategies that you can employ to reduce the probability of Fraud:

1)      Establish and maintain policies and procedures of roles and responsibilities.  Every role should have a back-up that can step in and carry out the assigned tasks; as well as validate that tasks are being carried out in accordance with policies.  No one employee should be responsible for every step of a single financial process.  Consider carrying out a Segregation of Duties Analysis, i.e. a review of all financial tasks and the title of the responsible individual handling each task. (http://wp.me/p2aImN-7Z).

2)      Foster an ethical culture within your firm which includes training and ongoing reinforcement throughout the year.  The ethical culture must start from the top and go down. If your employees question your ethical behavior, they will only consider their actions in the context of the standard you set. (http://wp.me/p2aImN-2y)

3)      Educate staff on the proper policies and procedures and their responsibility to report abuses, without fear of retaliation, i.e. a “Whistleblower Program.  It is unlikely that an external source will advise you of any potential fraud.  Not knowing your company’s acceptable policies, they will not know if fraud is being committed.  Alternatively, employees are the best source to understand if something does not appear quite correct. (http://wp.me/p2aImN-4n)

4)      Conduct regular audits for validation.  During the review of your financial tasks, you will quickly identify those areas where a risk of fraud is greatest.  Develop ways to test the area, to proactively identify abuse.  Basic tests simply compare what you expect with actual results, allowing for a small tolerance range. (http://wp.me/p2aImN-5f)

5)      Listen to the results.  This point is very important.  If during your testing you discover results that you did not expect.  Thoroughly investigate the reasons for the variance.  Either the tolerance ranges are too small or you have discovered an issue.  These tests and the results do not need to be trended.  If a tolerance range is breached, further investigation is necessary.

6)      Report audit results.  Senior Managers should become accustomed to reviewing results and gain comfort in knowing fraud has not been identified.

7)      Annually reassess your policies and procedures and the corresponding tests, to ensure the proper business risks are identified and tested.

What is your experience?

 

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.
© Copyright 2013 Regis Quirin, All rights Reserved. Written For: CFO Tips - What you need to know, to be a CFO TODAY!

Regis Quirin

Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

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