Workplace Fraud: Simple Procedures Can Reduce Your Exposure

In today’s world, and especially today’s economy, workplace fraud has become all too familiar. Small businesses (fewer than 100 employees) are often vulnerable to fraud because of the absence of internal controls and the inability to maintain a proper segregation of duties with limited staff. According to the ACFE’s 2012 Report to the Nations, at 31.8 percent, the most common victim in fraud activities are small businesses. There are five fraud schemes that are most common in small businesses (ACFE’s 2012 Report to the Nations). They are: billing fraud, corruption, check tampering, skimming, and expense reimbursement fraud. Although this information can be daunting, there are ways in which small business owners can protect themselves and their business by putting procedures in place that make it more difficult for a fraudster to commit fraud.

The most common fraud scenario that we see involves the most trusted employee. Someone committing workplace fraud is normally not going to fit a criminal profile. They are often upstanding citizens of the community, have a family to support, attend a local church, and volunteer. The ACFE’s 2012 Report to the Nations, found that approximately 87% of workplace fraudsters had never been charged or convicted of a fraud-related offense. The most trusted employee is often someone who has been given substantial authority and access to funds. Motivation to commit fraud is different for each fraudster, but typically the fraud starts out as something small and fraudsters often rationalize their fraud by considering their theft a “loan” that they will repay. The fraudster possibly has financial difficulties or feels entitled to the money. However, over time the fraud becomes easier and easier to rationalize and the framework and amount of the fraud grows.

At Falco Sult, part of our Financial Success by Design network includes forensic accounting. We have seen some of the fraud schemes noted above and have worked with our clients to develop internal controls and segregation of duties specific to reduce their exposure to fraud. As a business owner, the most important thing to keep in the back of your mind is skepticism. It is imperative that not one person be given ultimate authority and that certain checks and balances are in place to prevent an override of controls. If you are interested in learning more about Falco Sult’s forensic accounting services please call our office at 425-883-3111.