6 Tips to Protect Your Business from Organizational Fraud

Fraud can occur in any organization — even with trusted employees — at any time. However, during the current health crisis and economic situation, organizational fraud can become even more prevalent.

At any given time, there are usually three factors that come into play when it comes to business fraud:

• Incentive
• Opportunity
• Rationalization

In our current economic climate, all three factors can easily be exacerbated.

• If an employee has had their hours or pay cut or their spouse has been laid off, they may have extra incentive to commit fraud.
• With additional funding coming in through government relief programs like the Paycheck Protection Program, there may be more money available. And some EIDL advances have been deposited with no notice to applicants. That could give someone the opportunity to commit fraud.
• If an employee is worried about their financial status, it’s not difficult to understand how they could rationalize committing fraud.

To keep you and your business safe from organizational fraud, consider taking the following actions:

1. Watch for red flags in an employee’s behavior. If an employee starts acting out of character, it’s time to have a conversation about what’s going on. Some life changes — especially like those happening now — can cause an honest employee to commit fraud if they see no other alternative.
2. Reconcile the accounts receivable and accounts payable monthly. Only the owner or manager should review and clear all exceptions.
3. Monitor cash receipts and deposits independently of the employees recording them. Have someone not involved in the receipt and recording of accounts receivable open the mail, count money received, and report the total to the owner or manager who should then compare those totals with the amounts deposited.
4. Have bank and credit card statements sent directly to owners, managers, or the audit team rather than your office. Review bank account transactions and canceled checks for unusual transactions or forged or altered checks. Make sure someone who doesn’t have check-issuing authority performs bank reconciliation.
5. Restrict authorization and access to financial information. Make sure all of the computers are password protected, and set dollar limits on checks written without authorization. Other safeguards include dual custody of cash receipts and cash on hand.
6. Review documentation for all check requests. Compare the original vendor invoices, purchase orders, and receiving reports for agreement on quantities, brands, product descriptions, and services before issuing payment. Also, review the credit card bills and support for each charge before payment. Mark invoices “paid,” and include the related check number.

For other tips and tricks to help mitigate the chance of fraud happening to your business, review our fraud-prevention checklist. And reach out to us if you need help with a fraud-prevention checkup for your business.

This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.