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Protect Your Business from Employee Fraud

Installing a safe and securing cash and other valuables are among the many steps employers can take to fight workplace fraud. Photo by Nicole De Khors from Burst

The bookkeeper for a small Sullivan County business is charged with making $3,000 in personal purchases on the company credit card.

An employee of an Ulster County restaurant is charged with stealing $12,000.

The longtime office manager of an Orange County propane dealer pleads guilty to embezzling more than $1.3 million – the equivalent of four years of profits – by disguising thefts as payments to vendors.

Experts estimate that organizations lose 5 percent of their annual revenues to fraud. Organizations with fewer than 100 employees are more likely to be victimized by occupational fraud – acts committed against an organization by its own officers, directors or employees – than are larger ones. And the losses for small organizations, which are more likely to lack internal controls, are typically twice as large, according to the Association of Certified Fraud Examiners’ Report to the Nations 2018 Global Study on Occupational Fraud and Abuse.

The path to a more secure workplace

Organizations need strong internal controls to prevent theft and fraud. What can a small organization with limited resources do to protect itself? Consider these steps to help reduce risk:

  • Have a written code of conduct, documentation of policies/processes, and anti-fraud policies in place. Have staff review these documents each year.
  • Segregate duties when possible, bearing in mind the potential for collusion.
  • Conduct background checks on all potential hires. If red flags are detected, do not hire the applicant without a confirmed (hopefully, in writing), sound explanation.
  • Rotate job responsibilities when possible.
  • Require employees to use vacation days, and have their job duties covered by another employee who can discover any questionable activity. Follow up with the covering employee. Ask about job-efficiency suggestions, and if they identified any concerns.
  • Provide separate user names and passwords for all authorized IT users, with information-access rights limited to required users.
  • Use a safe and security cameras. Safeguard cash, checks, credit cards and inventory.
  • Take a physical inventory at least once a year.
  • Require authorizations, receipts and recording of all petty cash transactions.
  • Have copies of bank and credit card statements sent to the home of a key manager or board member who can review them.
  • Require detailed receipts for all credit/debit card charges shortly after they are incurred.
  • Require two signatures or written authorization for expenditures over a material dollar amount.
  • Require detailed invoices from vendors that clearly outline goods and/or services provided, related locations/job names, etc.


Give your organization a checkup

Conducting regular reviews of key checkpoints in your organization can help you detect fraud early. If maintaining a schedule is difficult, try random, unpredictable reviews as frequently as possible.

Here are a few ways to get started:

  • Review monthly bank statements. Ensure checks paid were properly authorized and signed. Test large checks to the related underlying documentation. If checks are out of chronological order, determine why, and locate any missing ones. Confirm total deposits match accounting records and investigate any discrepancies. Compare the bank statement to the bank reconciliation and note if any payee name differences exist. If payroll checks are issued, examine any payroll checks with two endorsements.
  • Investigate unexplained differences in monthly cash flows from prior periods.
  • Review monthly or quarterly payroll reports. Investigate unexplained compensation increases, overtime and/or unusual reimbursements. Verify that new employees exist and former employees are no longer being compensated. Investigate any employees with no withholdings.
  • For point-of-sale transactions, reconcile closeouts to bank deposits. Note if discrepancies regularly occur with a specific employee.
  • Investigate unexplained changes in sales from prior periods. Identify missing invoice numbers, unusual credits and potential over- or under-billings.
  • Review software audit trails and access logs to identify any questionable activity or patterns.
  • Compare financial statements to the former period and clarify any unexplained discrepancies.

Here’s a final piece of advice. To limit workplace fraud, build a fair organization. Avoid situations that promote fraud, such as unrealistic goals, poorly designed incentive compensation plans or unfair workloads. Encourage an atmosphere of open communication where problems can be identified and resolved.

If you think your organization may have been victimized by occupational fraud, contact Advent Valuation Advisors at info@adventvalue.com.

Meet Our New Partner, Lorraine Barton

Lorraine Barton

Advent Valuation Advisors, LLC, takes great pleasure in announcing that Lorraine Barton, CPA/ABV/CFF, CIRA, CVA, MAFF, MBA, has been admitted to the partnership. 

Lorraine joined Advent, an affiliate of accounting and advisory firm RBT CPAs, LLP, in 2015. She has an extensive and varied accounting, valuation and litigation-support background in private industry and public accounting.

Lorraine has provided bankruptcy-support services since 2002 and business valuation services since 2004. She previously served as interim chief financial officer of a $125 million credit card processing company operating in Chapter 11 bankruptcy, helping to facilitate the sale of the business and saving more than 100 jobs.

At Advent, she and her team provide valuation and litigation-support services to closely held businesses and their advisors for purposes including mergers and acquisitions, buy-sell agreements, divorce, estate and gift-tax planning and corporate reorganizations.

Lorraine has completed a 40-hour divorce mediation training program that meets the requirements of the New York Association of Collaborative Professionals. She and the firm have wide-ranging experience in matrimonial finance, including asset tracing, lifestyle analysis and forensic examination.

Lorraine lives in Fishkill and has two sons. She is a graduate of Leadership Orange and serves on the NYSSCPA Business Valuation Committee.

She is also a member of the American Institute of Certified Public Accountants (AICPA), the National Association of Certified Valuators and Analysts (NACVA), the Association of Insolvency and Restructuring Advisors (AIRA) and the Hudson Valley Collaborative Divorce & Dispute Resolution Association (HVCDDRA).

“We are so pleased to welcome Lorraine as the newest partner in Advent Valuation Advisors,” said Michael Turturro, managing partner of RBT CPAs. “Lorraine is a crucial part of our continued growth. I wish her congratulations and many years of continued success!”