Banking & Finance and Human Resources

6 easy ways to help prevent occupational fraud

July 31, 2015
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Occupational fraud is otherwise known as employee theft. It’s a business owner’s worst nightmare.

Fraud is a difficult subject, one that many would just like to avoid in hopes that it won’t happen to them. Unfortunately, this mentality usually leads to the opposite effect.

Following are six tips that are easy to implement and may save you the headache of dealing with occupational fraud.

1. Set the tone at the top

Employees who view their leaders as honest people are more inclined to emulate that behavior. The opposite is also true. Don’t give employees an excuse to be dishonest. The organization can often reduce the motivation for its employees to commit fraud by creating a positive and open work environment.

2. Have a written code of ethics

A written code of ethics sets forth what the organization expects from its employees. Although many larger organizations are implementing written codes, the same cannot be said of smaller ones. And that’s where the risk of occupational fraud and abuse is highest. It should be simply stated and discussed often within the organization.

3. Check employee references

Some occupational offenders chronically abuse their positions and are simply discharged. These persons usually go on to other organizations where they continue their patterns of fraud and abuse. They often purposely select organizations where they know prescreening is nonexistent. At the least, perform a background check that will immediately identify any serious issues right up front.

4. Examine all bank statements

The organization’s unopened bank statement should be reviewed at the highest possible level. Since most occupational fraud involves skimming cash and false disbursements, a responsible person unconnected to the bank reconciliations should look for unusual patterns, dual endorsements, unfamiliar vendors and unfamiliar financial trends.

5. Have a hotline

Many occupational fraud cases are discovered through tips and complaints by fellow employees. Employees are often in a position to observe improper conduct but have no way to report it without fear of retribution. Some companies use a subscriber service while others maintain an internal hotline.

6. Review your internal controls

Internal controls are most effective when developed and followed intentionally. It’s a good idea to review these controls on a consistent basis especially during times of growth or accounting personnel change. Use a qualified professional in this process. They have the experience to look at internal controls from a different perspective and offer suggestions for improvement. Internal controls are a main ingredient in preventing the opportunity for fraud to occur.

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