Is Your Accounting Department Protected From Fraud?



We have all heard stories of situations where a trusted employee has been accused of taking money from their unknowing employer.  Lucrum even has a couple clients who were victims themselves. We probably are all thinking, “How could this happen?”

It often seems that anyone reviewing the numbers would see the improprieties.  But as is the case time and time again, crafty employees can hide the fraud from their employer with a bit of forethought and with a trusting employer’s cooperation. 

Here are some ways that employees can perpetrate fraud and ways to prevent this type of fraud from occurring in your business:

  1.  Cash Receipts Received in the office.  If an employee is handling cash, there will be an inherent risk that the cash may be pocketed.  Even in the case of long-term employees, things change.  Make sure that the employee who takes the cash is not the same employee who posts the cash to the customer account.  Try to have separation of duties if at all possible and ask questions if some deposits do not seem correct.
  2. Payments to vendors.  If the person who pays the vendors also sets up the vendor in the accounts payable system, there is a risk of fraud.  An employee can set up a vendor which may be similar in name to an actual vendor, but is really a company they have created to receive deposits from you.  Make sure all new vendors added are approved and that a list of all new vendors added during the month is reviewed.  Review all large invoices for propriety, too. Paying attention while signing checks can also help spot checks to bogus vendors as well.
  3. Credit card access.  Credit cards are a convenient way to pay for miscellaneous expenses, but they can also make it easy for an employee to use your company to pay for personal items.  Be sure to go through each item on credit card bills for authenticity and approval.  If an employee makes unapproved purchases on a credit card and is not questioned about it, that employee will know the potential for unauthorized use is out there.

The Fraud Triangle illustrates the three factors that must be present for an otherwise trustworthy person to steal from their employer.

Removing one or more of these components often can prevent the fraud from occurring. Fortunately for business owners, opportunity is the easiest one to remove.

Here are some other things you can do to foster an environment where fraud would be difficult: 
Be aware of your employee’s personal life.  Some danger areas are if the employee is living beyond their means, or if they have a large expense that needs to be paid, such as medical bills.  We are not proposing spying on your employees, but do pay attention to changes in lifestyle or other financial pressures such as sick family members.

Review bank and credit card statements every month – and ask questions.  Ask questions about the activity on the statements every month, just so your employees know that someone is checking.  It is surprising how knowing that someone is looking can prevent unwanted behavior.

Tell employees that fraud will be prosecuted.  Adding a blurb to an employee handbook or policies and procedures manual will make it clear what is expected and the results that will happen if fraud occurs.  It will also inform employees that your company is aware of the potential and is on the lookout. Surprisingly, one of the most common responses when a fraudster is caught is “I didn’t think I would get in trouble.”

While we believe that most people are good and trustworthy, there are always instances where a usually trustworthy employee may be tempted.  There is no surefire way to prevent all fraud from happening.  The most effective method of deterring fraud is to be aware of the risks and the methods of potential fraud, and pay attention.  Take steps so that your employees know you are watching.  You are the best deterrent.