There’s no getting around it: every business is vulnerable to fraud. The Association of Certified Fraud Examiners (ACFE) reports that the typical organization loses five percent of revenues each year to fraudulent activity. Once business owners accept this reality, the question becomes: what can I do to reduce my risk? Here’s another fact: the cheapest way to handle fraud is prevent it. Thankfully, there are some basic steps you can take to protect your company’s reputation and finances.
- Understand your vulnerabilities. The old adage holds true – knowledge is power. The foundation for any fraud prevention strategy is an understanding of your current risk level. A comprehensive review of your company’s fraud exposure risk is a good place to start. This analysis provides you with a thorough overview of your company’s risk factors and outlines what could go wrong, how adequate your current controls are and what you can do now to reduce your fraud risk. Once you know the lay of the land, you can move forward with fraud prevention strategies.
- Watch the books – closely! It may seem obvious, but business owners must be aware and knowledgeable about the financial transactions running through their company’s books. A hands-off approach from upper management creates a leadership vacuum in which fraud can thrive. Cross-train employees, implement dual controls, regularly review bank statement details and require supporting documentation be retained for each transaction. This extra level of checks and balances goes a long way to set the right tone at the top and let employees know that fraud will not be tolerated.
- Make reporting easy and discreet. According to ACFE, tips are consistently the most common fraud detection method – twice as high as the detection rates from manager or internal reviews. Establishing an anonymous tip line or online reporting option encourages employees to come forward without fear of backlash or retribution. As the saying goes, sunlight is the best disinfectant, so don’t overlook the culture of your company. Fostering a sense of transparency and openness helps empower your staff to bring up suspicions and concerns before they rise to a higher threat level.
- Thoroughly vet potential employees. Part of creating the positive culture described in tip #3 is to make sure individuals are a good fit before they are brought onboard as new employees. Beyond the standard employment verification process, background checks and drug tests can flag issues before hiring. This may seem onerous or invasive, but it pales in comparison to the damage that could be inflicted by hiring a troubled individual and giving them access to your company’s assets and confidential financial information!
These early precautions can help raise awareness of the risk for fraud and instill a zero tolerance atmosphere for underhanded behaviors in the workplace. If you are looking for a partner to help your company fight fraud, look no further than RKL. Learn more about RKL’s fraud and forensic accounting services or contact Bethany A. Novis, CPA/ABV, CVA, CFE, at (717) 394-5666 or firstname.lastname@example.org.
Contributed by Bethany A. Novis, CPA/ABV, CVA, CFE, a partner in RKL’s Business Consulting Services Group and managing partner of RKL’s Lancaster office. Bethany specializes in fraud investigation, business valuation and litigation services. In addition to being a licensed CPA accredited in business valuation, she holds designations as a Certified Valuation Analyst (CVA) and a Certified Fraud Examiner (CFE).