Take a look at your company, and think about the
hardworking employees who help your company succeed.
What would you do if you
found out that one of them
stole from your company, be it
supplies or money?
This scenario is one that
plays out at businesses across
the country. Fraud can happen
in thousands of different ways,
and experts estimate that companies lose about 5 percent of
revenue each year to fraud.
“The typical scenario we see
is where the owner or management relies too much on
trusting a couple of individuals
rather than relying on business
controls,” says Kevin R.
Krencisz, senior manager at
Barnes Wendling CPAs Inc.
“My usual response is,
‘Hopefully, you trust who’s
working for you, otherwise I
would hope you wouldn’t keep
them on the payroll.’ You have
to go further than that. People
can’t feel like they have the
opportunity to commit fraud.”
You can help prevent fraud
at your company by putting
some key controls in place.
Krencisz says that brainstorming with management and with
key employees can help you
identify the ways that fraud
could happen at your company and then implement controls to prevent it.
Beyond that, Krencisz says
that you should pay attention
to gut feelings. If something
doesn’t feel right, follow
through with the right people,
such as your accountant, to
uncover whether something is
wrong.
“You don’t want the people
you suspect to know you suspect something, because they
could start getting rid of documents or covering their
tracks,” he says. “The worst
thing is, whether it’s a couple
months or years down the
road, you say, ‘Something didn’t seem right, and I should
have checked up on it.’ A lot
of times, the hunch can go a
long way.”
Knowing how fraud occurs
can also help you detect and
prevent it, and your accountant can educate you about
fraud that has occurred at
other companies and what to
look for to keep it from happening to you.
Defining fraud and setting
up a comprehensive code of
ethics and conduct for
employees to follow will
make it clear to them that
theft is unacceptable.
Krencisz says that because
fraud can be defined many different ways, you need to
create a definition that both
fits your company and that is
easy for employees to understand.
Despite taking all these precautions, you may still find
yourself a victim of fraud.
Once discovered, you need to
deal with it swiftly and
explain to other employees
what has happened so that
they understand you are serious about it not happening
again.
“If I knew a colleague who
stole from the company or
lied and they weren’t terminated, I might say, ‘Well,
maybe I can do the same
thing and get away with it,”
Krencisz says. “I encourage
people to be vigilant and have
a no-tolerance policy, and
when it’s caught, it needs to
be dealt with.”
And by being upfront with
employees about the situation, you are also giving them
the opportunity to share information they may have about
suspicious activity.
Krencisz says that employers might take fraud more
seriously if they took a hard
look at the numbers involved.
“I sort of imagine if there
was a line on the income
statement that said ‘fraud
expense,’ and it totaled 5 percent of revenues, that would
be eye-opening to someone to
say, ‘Can’t we control that
somehow?’” Krencisz says.
“Ultimately, it could take a
few changes within the internal structure to get that 5 percent back. Companies sit
back and think of ways to cut
costs … and here some of that
is right at their doorstep and
can be done easily.” <<
How to prevent fraud
Fraud can happen in thousands of ways, says Kevin R.
Krencisz, senior manager at
Barnes Wendling CPAs Inc.
Here, he offers tips on how to
prevent it from happening at
your company.
- Have the bank statement
sent to someone off-site. That
person is then looking at the
cancelled items and statement
independent of the cash
process. - Limit access to company
credit cards. Krencisz says providing access to company credit
cards can be like giving employees approval to make unauthorized transactions. Make sure
those who do have access provide reconciliation within a week
of a transaction. - Prepare a budget for actual expense items. Krencisz says
you can see a lot through this,
especially if there are fluctuations from one period to another. And be sure to get explanations for these fluctuations. - Examine journal entries
and adjustments made to the
accounting. Krencisz says that
those in accounting who want to
bury something can cover up a
lot. - Give employees a forum to
bring information to you.
Krencisz says a lot of fraud
cases are uncovered by employees, so you need to have a way
for them to anonymously communicate these issues to you in
a way where they know they are
not going to be punished. Follow
up on this information and make
sure it’s not just a case of an
employee making a false claim
against an employee he or she
does not like.
HOW TO REACH: Barnes Wendling CPAs Inc., (216) 566-9000 or www.barneswendling.com
