Employee fraud and dishonesty take a toll on business of all sizes. Last week, I provided a list of concerns that should be investigated to protect your business from occupational fraud. This week, I share ways to take action to prevent these business-damaging events.

One aspect of fraud prevention includes thorough fraud detection training. Teach employees and managers the impact fraud can have on the organization, what constitutes fraud, the warning signs of fraudulent activity and how to report suspicious behavior.

Another fraud prevention measure includes implementing internal controls. Internal controls help ensure efficient operations, compliance with laws and regulations, safeguarding of assets and accurate financial reporting. These policies and procedures should address:

  1. Separation of duties: Implement a practice in which two separate employees are responsible for recording and processing a transaction.
  2. Access controls: Restrict access to physical and financial assets and information, including online financial information such as bank accounts and credit card transactions, to authorized employees.
  3. Authorization controls: Develop and implement policies to determine how financial transactions are initiated, authorized, recorded and reviewed.
  4. Policies: Establish and communicate strict policies for accessing company assets such as business inventory.
  5. Exposure to cash: Monitor cash transactions closely and request receipts for all transactions.
  6. Audits: Institute regularly scheduled and occasional random audits by a qualified financial professional such as a CPA.

In the event of fraudulent activities, it’s important that business owners have a fraud reporting system in place. Employee tips are what most often uncover occupational fraud. Institute an anonymous reporting system for employees, vendors and customers to report any violations (suspected or actual) of policies and procedures. Craft and implement anti-retaliation policies that actively encourage employees to report suspicious activity.

It’s also a best practice for business owners to conduct extensive background checks on those who have access to company funds and other resources. For example, Society Insurance has a close relationship with Intellicorp, a background screening company. Through this relationship, Society is able to offers its insured business owners discounted background checks. Society also has its business owners consult with risk control professionals to identify weak security areas and minimize fraud.

Employee fraud and dishonesty take a toll on business of all sizes. But by understanding what may be at the root of fraud and being able to identify potential red flags, you will be able to take action to prevent business-damaging events.

(This is an excerpt from an article that appeared in the November/December 2013 issue of On Premise – the official publication of the Tavern League of Wisconsin. The complete article is available here.)

-Mike Rosenau