Achieving Results, Exceeding Expectations

Corporate Law

Fraud Alert, Part II: Prevention

fraud buttonFraud can potentially cost your business a lot of money and hurt your reputation in the marketplace. In last week’s blog we discussed some of the most common fraudulent activities: check tampering, payroll tampering and mishandling of cash.

In this week’s blog, we offer some suggestions for preventing fraud at your office or practice:

  • Divide and conquer. What we mean by this is to divide up responsibilities for dealing with money and financial information so that one person does not have too much power. Consider how you could add a balance of power and responsibility in the structure of how you handle payroll and incoming cash, two key areas of fraud. Some possible suggestions include segregating record-keeping from cash handling duties by making two people ultimately responsible for these functions. In addition, multiple people should be participating in the payroll procedures to be sure the information reflects what is actually occurring and that no irregularities are being overlooked. This is particularly the case when payroll is managed off-site.
  • Hire the experts. Consider using so-called forensic accountants who specialize in devising systems to prevent fraud and who can look at your books and standard operating procedures to see where your areas of greatest exposure are.
  • Create an environment of integrity in your place of business. Take a serious look at the elements of transparency in terms of accounting, payroll and billing. Ask yourself if you have a palpable sense of corporate ethos and a feeling that everybody is playing by the same rules.
  • Educate your leadership team about possible signs of fraudulent activity. These can include an employee who refuses to take vacation time and retains tight control over a number of significant components of the business, which can also describe a very ambitious employee, so they can be tough to spot. Another red flag can be conspicuous spending patterns on the part of an employee.

Fraud does not have to be inevitable. Trustworthy employees who operate in a system of open communication, balanced with appropriate supervision and division of powers can be a part of a healthy, profitable endeavor.