Updated: Oct 5, 2021
Corporate fraud is everywhere: in the mailroom, in the boardroom, and everywhere in between. As auditors, managers, executives, and business owners, should we find it? Could we find it? How do we find it? Where do we start? Where do you get internal audit training concerning fraud detection and presentation?
Corporate fraud, also known as Occupational Fraud, is the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets. Fraud costs money. Conservative estimates indicate losses to corporate fraud amounting to $600 billion in the U.S. That’s more that the Gross National Product of many countries. That translates to $4,500 per employee.
Preventing and detecting fraud is everyone’s job. What can we do?
Start with the "tone at the top”. Whether you’re managing the organization or managing a department, set a good example for your employees. Ethical behavior by Management trickles down.
Implement a hotline. A fraud hotline can be implemented in a variety of ways: a voicemail box, e-mail address, PO box, web form, customer service number, etc. Since most frauds are discovered through tips and complaints, encourage your employees to use the hotline, and let your vendors and customers know about it too.
Distribute an Ethics policy, with “teeth” describing the ramifications for violators. Train and re-train the employees so that everyone understands.
Assess your risks. Where in your organization is fraud most likely to occur? What targets represent the largest dollar value? What targets represent the largest number of transactions? What targets are not on the radar screen and being overlooked?
Control the cash and other assets. Anything that can be readily converted to cash has to be closely controlled. DO NOT ALLOW the same person to collect the funds, write the checks, reconcile the bank accounts, and maintain your books! Dual control and segregation of duties helps. But it’s not always feasible. So periodically spot-check the “sensitive” duties. And let the employees know that someone else is watching.
Conduct audits. Implement and test your internal controls. Audits of internal controls are essential to detect and deter fraud. Correct the control deficiencies.
Analyze your data. Use software to dig into the general ledger, sales, accounts payable, payroll, inventory, contacts, billing, quality system, and other areas. Locate the anomalies. Follow up.