The numbers are fairly staggering. A typical company loses about five percent of its annual revenues to employee fraud. According to the Department of Justice, one-third of all employees commit some degree of employee theft. The good news is that three swift actions can help you towards fraud proofing your business.
Matt Barberich, a business valuation and forensic accounting specialist and CPA with MarksNelson says the most important thing a business can do is remove the potential opportunity for the fraudulent activity to occur in the first place.
“The first way to help prevent fraud from occurring in an organization is to implement proper segregation of duties and appropriate management oversight,” says Barberich. “Separating operational functions can increase the difficulty for fraud to be perpetrated. A big problem in many cases is that an owner or manager is simply too busy to look everything over, so implementing appropriate management oversight is very important.”
The second item in your organization’s fraud-proof action plan is to establish an anonymous and confidential hotline. Giving employees the ability to report suspicious or fraudulent activity in a confidential and anonymous manner can reduce the hesitation to report due to the fear of retaliation or negative repercussions.
And finally, set the tone at the top. Top executives must demonstrate that they have created an operating environment of integrity and compliance to reduce the perceived opportunity for fraud to occur, and make sure employees understand it will not be tolerated.
Barberich says the most common mistakes companies make include the lack of a sophisticated accounting department and delegating too many operations to a trusted individual. This often occurs with smaller businesses as employees are juggling multiple roles and in some circumstances, the technology and resources are not up-to-date. Having qualified and strong employees in the accounting and finance department of a business goes a long way to protect your business from employee theft.
For more tips on fraud-proofing your business, contact Matt Barberich at email@example.com or 816-743-7700.