Holidays, and the Chance for Fraud

The economy is taking its toll everywhere you look. Not surprisingly, an increase in fraud is one of the byproducts of the slump. A recent survey by the Association of Certified Fraud Examiners showed that 55 percent of the surveyed fraud examiners said the incidence of fraud had slightly or significantly increased in the past 12 months compared with prior years.

Nearly half – 49 percent – said heightened financial pressure was the cause of the fraud increase. Increased opportunity and increased rationalization – the other key factors leading to fraud – were cited about half as often as financial pressure as main causes of fraud. “The message to Corporate America is simple: Desperate people do desperate things,” ACFE President James Ratley said in a news release. What can business owners do?

First, be aware of the key trends impacting fraud in the business world. Companies are overloaded. They’ve had to cut staff and are spread as thinly as they can be. So bosses might have a suspicion that fraud could be taking place, but they simply lack the resources to spare in order to investigate it. Job cuts and cost-cutting moves are directly impacting the tools companies have to fight fraud. When firms look to trim costs, in many cases internal audit and fraud departments are bearing the brunt of the blows. They often still exist, but in a bare-bones manner. Those prone to committing fraud have more opportunity and rationale than in the past, too.

Many ex-employees have been laid off and want to strike back at the company. Some had access to key information within the company and know how to work the system to get to it. Beyond that, employees who survived job cuts still might be worried about whether they’ll be able to keep their jobs. That might make them more likely to commit fraud. Once business owners are aware of the trends that are transpiring when it comes to fraud, they can plan and take action to prevent and detect fraud. Start by making sure you’re sending the right signals to your employees about fraud. Make sure you do things by the book. When others see the tone you set at the top, they’ll naturally follow. Even if something seems OK, if it feels unethical, it probably is. Show your employees you won’t tolerate any misdeeds.

Hiring plays a big role in preventing fraud. It can be tough to stop someone who’s determined to defraud you. But you can prevent it by hiring people who wouldn’t think of doing it in the first place. Screen candidates as much as possible. It can be hard to get previous employers to say much about a candidate, but make sure you call all the references you can. Seek additional references, if needed. And verify that the job candidate’s educational background is what the person said it is. Background checks can help, too. Remember, in a tough economy, you typically have more strong candidates to choose from, so you can screen more carefully. Set out a code of conduct for employees and put it in writing. Get employees to sign it, too. It might seem unnecessary, but studies show that having a code of conduct in place reduces cheating, and getting people to sign it cuts down even more on wrongdoing.

Don’t leave it at that, though. Reinforce the ideas in the code regularly so employees know you take them seriously. It also helps to let people know you’re serious about uncovering fraud. Put controls in place to show employees you’re likely to detect or prevent any wrongdoing. You don’t have to treat employees as though they are guilty, but make it clear the safeguards are in place to stop any problems before they start. Put a significant employee education plan in place, too. Train employees to detect fraud from outside the organization, as well as anything suspicious from inside. Install a whistleblower hotline. Be aware of new and common ways that people commit fraud. Loss prevention programs can help you add new technologies and procedures that can catch employees in the midst of ever-evolving schemes. Make sure employees take time off, too. If someone is running an inside fraud scheme, they probably don’t want to take a vacation. That could allow others to find out what they’re really doing. And that’s exactly why you should make sure everyone does take their vacation days. If employees won’t take days off, you can reassign them to other duties for a week.

Finally, make certain you conduct regular audits. A quarterly audit of each procedure that involves the handling of cash is appropriate. And if you bring in an outside auditor, it shows those at your firm that you’re serious about detecting fraud. Despite the economic downturn, or perhaps because of it, it’s important to make these moves. You’ll stand a much better chance of avoiding the sinking feeling that someone has defrauded your company out of thousands of dollars.

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