Tag Archive for "Embezzlement"

Have you implemented fraud prevention strategies?

Wed, Nov 25, 2009 at 9:00 am Posted in Advisory Boards, Business Intelligence, Financial Intelligence, Operations 2 Comments

It’s a chilling statistic: 65% of people in “trusted” positions will commit some type of occupational fraud.

I was reminded of this recently when a small business owner shared their business was the victim of an embezzlement.  It was only caught when the business owner noticed a suspicious e-mail.  This is when most business owners institute the internal controls they haven’t had time to implement.

Given it’s the holiday season and the economy has left many cash strapped fraud can increase.  Here are steps you can implement to prevent fraud:

  1. Separate accounting and financial control responsibilities, this means the person sending out the bills should not reconcile the bank statement.
  2. The CEO/business owner might do a surprise review of the bank statement before it has been opened.
  3. Require all disbursements, i.e. checks and electronic, to have two signatures of approval and the signatures should be manual not a stamp.
  4. Conduct background checks on employees including criminal checks where the position has access to company funds.
  5. Create a process to make it easy for employees to come forward with information on what might be suspicious activities.
  6. Document procedures and annually audit the procedures to see how well they are being followed.
  7. Engage accounting and other professionals to help institute appropriate policies and procedures that protect the company and the employees.
  8. Press criminal charges.  Fraud is a criminal act yet many business owners fail to press charges.  They are embarrassed to admit it happened to them…so the criminal moves on to their next victim company to do it all over again.

Several years ago while serving as the contract CFO of a non-profit I instituted a very specific form and procedure for moving funds.  While I did not have signatory authority (by choice), it was still possible for me to move funds.  This left the organization and me exposed.  I created the form which required the executive director’s signature and notification of the treasurer so the funds transfers were transparent.  I was protecting the institution and myself.

Are you protecting yourself against fraud?

Thu, Apr 16, 2009 at 9:41 pm Posted in Advisory Boards, Finance, Financial Intelligence, Human Resources, Operations, Strategy 0 Comments

In times of economic turmoil the incidence of fraud and embezzlement increases.  You can protect yourself by implementing and enforcing a few simple procedures.  These procedures are ones all business should follow regularly but may have been lax in enforcing.  Now is the time to tighten up the ship.

  1. Manually sign all checks. Do not use a signature stamp.
  2. Only sign a check if it is supported by an invoice, a purchase order or check request explaining the purpose of the disbursement.
  3. Rotate who opens the bank statement each month and make sure the person who prepares the checks or prepares the billing is not involved.  Open the statement as soon as it arrives and look for any odd or suspicious.  Call the bank if you are even mildly concerned.
  4. Have someone not involved with paying vendors or collecting from clients prepare the monthly bank reconciliation. Someone from senior management, if there isn’t a CFO, needs to review the monthly bank reconciliation.
  5. Review the list of invoices prepared each month to identify any customers you do not recognize.  If anything looks odd, call the customer and verify the order.
  6. Manually approve all electronic transactions. A form similar to a check request can be developed to support the individual transactions.
  7. Verify all unused checks are accounted for. This is done by periodically flipping through the unissued checks to make sure there is no break in the numeric sequence.
  8. Keep checks locked-up with as few people as possible having a key or knowing where the key is kept.
  9. If you experience an unusual and unexplained cash shortage bring in a consultant to investigate.
  10. If you do find evidence of fraud or embezzlement make sure you prosecute the individual so they don’t become a repeat offender.

A former client suspected one of its senior people was ripping them off by charging things to the corporate credit card. Things that could possibly pertain to the project the person was working on. It went on for years and no one investigated. When they finally acted they determined they were out in excess of the $250,000 they were able to recover.