Fight Back Against Internal Fraud
Posted on Monday, September 24, 2018 Share
Internal fraud drains approximately $4 trillion dollars annually from global businesses, according to the Association of Certified Fraud Examiners (ACFE). According to ACFE's latest Report to the Nations, the median internal fraud loss in manufacturing and production companies is $240,000.
Who is Involved?
Male employees account for 69% of fraud case, while women are responsible for the other 31% of cases globally.
The median loss for all industries was higher when committed by men ($156,000) as compared with women ($89,000).
Losses tend to rise as the perpetrators' tenure with the organization increases.
Small businesses are the most vulnerable because of a lack of basic internal control measures.
-- Source: 2018 Report from the Assn. of Certified Fraud Examiners
Examine Workplace Environment
One important factor in whether or not employees steal is their attitudes. Employees who feel they are treated fairly by their company are less likely to commit fraud. Many offenses are committed by people who hold grudges and are looking for revenge.
Although companies can experience pilferage from customers, vendors and other sources, employees account for the highest losses, when taking into account offenses such as fraudulent insurance claims, unauthorized time off and theft of proprietary information. Crimes can be as simple as stealing company supplies or as complex as sophisticated financial statement fraud.
More specifically, fraud by managers and key executives generates the highest dollar losses because these employees are in a good position to falsify financial, credential, work-related or test-related documents for personal gain.
What can your company do to prevent theft? The ACFE report found these measures to be effective:
1. Improve internal controls. For example, do not allow the same employee to keep books, collect funds, write checks and reconcile bank accounts. Arrange for monthly bank statements to be delivered unopened to the company owner, who should review them for unusual transactions, such as declining deposits and checks to unfamiliar parties.
2. Conduct background checks on new employees.
3. Arrange for fraud audits by the company's outside accountants or an internal audit department. CPAs can conduct regular independent internal control studies of cash accounts, bank statements and other items to detect criminal activity. Surprise audits are an effective, yet underutilized, tool in the fight against fraud.
4. Be willing to prosecute perpetrators.Some organizations take no legal action because they are afraid of bad publicity, reached a private settlement, wanted closure or considered internal punishment sufficient.
5. Provide ethics training for employees. Educate staff members about the possible sources of fraud and consequences, such as the loss of jobs, raises and profits.
6. Institute anonymous fraud reporting mechanisms, such as hotlines. Fraud is commonly discovered through tips from employees, vendors, customers or other sources. These people are frequently in a position to see violations of company policies or excessive personal spending by colleagues.
7. Install workplace surveillance devices. For example, a video camera monitoring a loading dock where theft is suspected.
8. Look for behavioral red flags including the perpetrator living beyond his or her means and having financial difficulties. They can also involve an unwillingness to share duties, a "wheeler-dealer" attitude, divorce or family issues, addiction problems, refusal to take vacations and an unusually close association with vendors or customers.
Take a zero-tolerance stand on fraud. With a few basic procedures in place, internal business theft can be significantly reduced -- or even eliminated -- so your manufacturing business can flourish. Ask your accounting firm for more information.
Posted in Manufacturing/Distribution
Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.