Top 5 corporate fraud prevention and discovery methods

Employee embezzlement can happen at the intersection between trust and reasonable security. People who are valuable parts of an enterprise need to have sufficient latitude to take action and get things done. The CEO or owner cannot do everything personally, so key people are entrusted with important roles including managing money and critical information within the firm.

Reasonable internal controls help protect the company from exposure to loss due to errors or fraud, but the need for personnel to be able to freely perform their duties allows the possibility for problems to occur. One common loss control method is to limit the amount an individual employee can authorize for payment. This can be circumvented as in the recent case at UPS, where an employee authorized multiple payments each for less than his $5000 limit. The employee and his vendor accomplice was able to steal $1.2 million until the fraud was discovered. In this case it appears the fraud was only caught when an outsider from a bank noticed unusual activity. This is a reminder to companies to use more than one method for preventing fraud or loss. For example, in addition to having a transaction limit, payments and invoices can be randomly reviewed.  Fraud cases almost always reveal that internal policies are used by the criminal to mask the scheme.

Coincidentally, there was another fraud scheme in Atlanta for about the same amount. An employee at the prestigious Woodruff Arts Center set up a dummy company and billed the non-profit for $1.4 million in fraudulent services. According to the center, they only have 13 vendors in total. Why are these types for frauds able to be committed?

It is a combination of trust and circumstances. Good corporate integrity should not change over time. If controls are in place, they should not change based on an employees tenure. Of course certain executives may be given more latitude as they prove their trust over time. However every transaction and payment should still be subject to audit. Especially those done under a trusted and less scrutinized initial process.

The video below will list 5 reasons why an employee crosses the line of integrity, and 5 ways to prevent fraud.

[youtube=http://youtu.be/zJSZOAYkiko]

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