March 11, 2014
Each year corporate America loses its shirt to white collar crime to the tune of an estimated $50 billion (United States Dept. of Commerce) mostly in the guise of fictitious billings with outside vendors, third party liability, wire fund transfers, foreign exposures and internet exposures. There are a number of helpful fraud prevention tools which companies can implement to decrease the chances of white collar crime in their environments:
- Establish a strong system of internal controls outlining the proper segregation of duties. In situations where a lack of personnel makes duty segregation difficult a supervisory control in the guise of a report listing all department transactions should be instated.
- Perform pre-employment screening including a criminal background check, credit history, drug test, contact personal and professional references listed, conduct a lien search in the county courthouse where applicant resides, perform a psychological test, previous employment checks etc.
- Develop a fraud policy to provide guidance to employees in the area of fraud detection and reporting.
- Educate employees through periodic fraud awareness training via interoffice policy memorandums and annual fraud training programs or seminars, increasing the perception that fraud will be detected. Also discuss the roles of auditors and regulators highlighting the fact that unusual transactions, financial ratios and trends or incomplete documentation will be noticed. Clearly communicate a company's intention to terminate and prosecute the fraud perpetrator.
- Observe employee behavior. Managers should be alert to significant changes in behavior or lifestyle.
- Offer rewards for fraud tips.
- Establish a telephone hotline for employees to report fraud and abuse anonymously.
- Establish employee support programs such as counseling for financial problems, gambling, abortion and drug and alcohol abuse.
- Perform pro-active auditing. Companies should initiate procedures designed to detect fraud rather than wait until it is brought to its attention such as surprise cash and inventory counts, review of payroll listings, noting fictitious employees etc.
- Require mandatory employee vacations/job rotations. As most internal fraud requires manual intervention it can be discovered when the perpetrator is on vacation, or through job rotating and cross training.
- Conduct meetings with industry peers on a confidential basis to review other fraud schemes experienced by other companies.
Source: Five Star Managers, Jersey City, NJ. For more information, contact: Graeme Slattery, The Corsi Agency, 415/772-5959, or Dennis Burns, Five Star Managers, L.L.C, 201/946-9752