Kelly Todd, CFE
Managing member & member in charge of forensic investigations
Forensic Strategic Solutions, LLC
According to the ACFE, a lack of effective internal controls are the primary contributing factor in nearly one-third of fraud cases. Why is this?
For many companies, the issue stems from the effort it takes to change set processes. Boosting internal controls isn’t difficult, but it does involve taking time to reassess company procedures. For smaller businesses, the challenge often lies in the lack of resources or staff.
However, with 2019 on the horizon, there has never been a better time to strengthen the safeguards that protect your company from fraud. By adapting the following four processes, you can boost your company’s internal controls in just a few weeks, ensuring that as you enter the new year, your company is well-protected.
Think about the current financial duties of your employees — especially in bookkeeping. Who has access to the money coming in? Who has access to the money going out? Who takes the money to the bank? Who writes the company’s checks?
If one employee at your business coordinates all of the duties above, you may be at risk for fraud.
It is crucial to remember that no individual should ever be left in a position to check their own work. Think of a transaction like a circle: no single person should be allowed to complete the circle by themselves. To combat this situation, consider segregating duties so that different people are handling different tasks. If you run a small business, consider finding ways to insert yourself into the process, minimizing the risk of potential fraud.
Place limits on company cards
Often, your company’s bookkeeper handles the company cards. When lax internal controls exist, this individual has the power to increase limits, request additional cards or make unapproved purchases.
One foolproof way to protect your business against this threat is to enact daily and monthly limits on company cards. This can be done in a matter of hours and can help your company dodge significant losses from fraud. Also, be sure that receipts are submitted and reviewed by yourself or another employee before bills are paid. Remember — accountability is key.
Maintain strong employee recruiting controls
What is your process when choosing candidates for a position? It probably includes perusing and selecting from a stack of résumés, interviewing potential candidates and following up with past employers for references. However, there is one step you should consider adding to your process: background checks.
Putting strong employee recruiting controls in place — such as background checks — ensures that candidates with questionable backgrounds are eliminated from the employee process before they have access to sensitive company information. Adding this simple step into your procedure allows your company to stay safe from possible fraudsters.
Every company has critical financial areas, such as cash management, accounts receivable, accounts payable, purchasing or vendor database management. It is crucial to protect these vulnerable areas from potential fraud. How?
Regularly rotate the duties of staff who interact in these areas. This will ensure that no one employee can gain too much power or become secretive and allows for potential fraud to be detected by other employees who share responsibility for that task.
As 2018 concludes and the new year begins, consider making a few of these changes in your workplace. Although it may require some of your attention over the next few weeks, it will be worth it to protect your organization from fraud and set yourself up for success in advance of 2019.
Kelly Todd is a managing member and the member in charge of forensic investigations at Forensic Strategic Solutions. Todd has a broad range of forensic experience, including financial and white‐collar investigations, fraudulent financial reporting, accounting malpractice and the calculation of economic damages.