Send Employees on Vacation to Prevent Fraud
Fraud costs U.S. businesses around $600 billion annually, according to the Association of Certified Fraud Examiners (ACFE).
Small businesses are especially vulnerable because they cannot usually afford to develop the same control mechanisms as large businesses. According to a 2004 study from the ACFE, companies with fewer than 100 employees reporting incidents of fraud suffer a median loss of $98,000, which is more than most midsize businesses. Companies with more than 10,000 employees lose close to $105,500 on average.
Protecting your business
Thomas Elden, a Department of Justice attorney with 12 years of financial fraud experience, states “when bookkeepers or accountants are on vacation, replacements can take advantage of their absence to search for evidence of embezzlement or other fraud.”
One characteristic shared by many of the companies that faced fraud in recent years was the lack of internal controls, according to Martin T. Biegelman, Certified Fraud Examiner (CFE) and ACFE Fellow.
The existence of strong internal controls will ensure that transactions are properly authorized, recorded and reported. Managers should also ensure that temporary employees are shielded from sensitive information. Internal controls are a safety net put into place by management where the organization’s financial reporting is checked for reliability and conformity with the generally accepted accounting principles.
The ACFE reported that company losses from fraud were cut in half in organizations with a fraud hotline that accepts anonymous tips. Many believe employee fraud all comes down to ethics, and a corporation’s ethics need to start at the top with its CEOs and managers.
A corporation’s ethical standards should be established by its CEOs and managers. Creating a code of conduct or a compliance program can help instill a sense of integrity and ethics in the business environment. The code of conduct should describe what behavior is appropriate and what is off limits, including current laws and regulations. All employees should read and understand the code of conduct and agree to comply.
Ethics is improved by creating a positive business environment. Some of the important factors that go into creating a positive environment are:
- Avoid the “do what I say, not what I do” philosophy.
- Maintain a training program that emphasizes ethics, and keep employees informed on how to report violations of ethical behavior.
- Make opportunities for promotion available.
- Create goals that are realistic so that employees don’t feel helpless trying to achieve them.
Fraud can be a dangerous threat to any organization. It is best to take preventative measures before a problem occurs, and maintain internal controls to spot any potential problems. The Association of Certified Fraud Examiners (ACFE) offers some great free tools to check your business’s position, http://www.acfe.com/fraud/check.asp.