Human Resources: Steps to prevent workplace fraud

The Whall Group

America’s National Pastime is not being played at places like Comerica Park. It is being enjoyed in offices like yours from coast to coast. That’s because fraud has replaced baseball as the most popular sport in the United States.

The recent Report to the Nation from the Association of Certified Fraud Examiners (CFEs) presents staggering numbers. Six percent of total revenues in American business are lost as a result of fraud and abuse. It is not just happening at companies like Enron and WorldCom. Small businesses often are hit hardest by white-collar crime. In fact, the average scheme costs a small business $127,500 in losses.

Most frightening to small business owners is the portion of the report that outlines who is most likely to commit fraud in the workplace. Chances are that it is your most trusted employees. Losses caused by perpetrators older than 60 are 27 times higher than losses caused by employees 25 and younger. Frauds committed by managers result in median losses of $250,000 – more than four times the loss caused by non-management employees.

So, what can you do to prevent fraud in your workplace? Don’t wait to take action until it is too late. The average fraud scheme lasts 18 months before it is discovered. It is up to you to put programs in place, so that your employees will not have the opportunity to commit fraud where they work.

The CFEs’ Report to the Nation lists the following tactics as the most effective ways to reduce fraud losses:

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Internal audits.
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External audits.
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Background checks of employees.

One mistake business owners commonly make is waiting until after a fraud scheme is revealed to take preventive action. An experienced fraud examiner will be able to work closely with you to examine the opportunities for fraud that currently exist in your business. This audit will closely examine the vulnerability of the systems in your business.

A careful examination of your revenue, payments, purchasing, inventory and payroll systems could reveal loopholes in your systems that could be exploited by employees who, given the opportunity, could rip you off.

Through a series of interviews and observations, a preventive fraud analysis will detail your environment and system of internal controls and make recommendations on how to tighten or otherwise improve your way of doing business.

Additionally, you should develop a program to create a “hotline” or another way for employees to report suspected fraud to you, without fear for their jobs. The National CFEs’ Report shows that organizations with fraud hotlines cut their losses by 50 percent per scheme. The most common method for detecting fraud is tips from employees. The second method of detection is something that you do not want to happen in your business – “by accident.”

By investing a relatively small amount now in a preventive program, you can help alleviate the opportunities that exist inside your business for your employees to commit fraud before your very eyes. Investing in this now would not only help you sleep better at night, it would also be far less costly than the impact of fraud in your workplace.

The Whall Group in Auburn Hills is a Gold-level member of the Detroit Regional Chamber.

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