How to Stop Employee Frauds in an Organization?

It is important to realize that employee fraud cannot be eliminated but the risks of it occurring can be substantially reduced. The strategies to reduce the risk of employee fraud must strike a balance between the need for such controls and not “micro-managing” employees, therefore businesses will have to accept some degree of risk of employee fraud.

Through the implementation of these strategies, your business can minimize the risk of becoming a victim of employee fraud.

1. Have a policy manual - Ensure that your control procedures are documented and that every employee has access to the procedures and is trained in them. Reports on the implementation of the procedures should be made to senior management regularly. There should be “zero tolerance” for breaches and adherence to the procedures should form part of the conditions of employment.

2. Create a strong code of conduct - The code of conduct should make it clear that there will be zero tolerance for any fraudulent activity on any level of the business and that any such fraud will be reported to the police. This code should also clarify what constitutes employee fraud, as this is often an area of confusion for employees.

3. Separation of duties - No one person should be responsible for a complete transaction from start to finish. For small businesses, where this is not practical, employees handling finance should be subject to close supervision.

4. Create a company-wide budget?- It is one of the most important control that a company can implement to stop fraud. When management has already decided what & how much costs to incur for the next year in advance, then there is little possibility to incur new & additional costs beyond the budget. Also, in case of a cost, which is indispensable, then senior management approval is required.

5. Create an authorization matrix - Implement policies that clearly articulate who is authorized to conduct transactions on behalf of the business and who is responsible for each step of a transaction (including who has the authority to authorize a payment over a certain amount or enter into a contract).

6. Implement a whistleblower policy - Have a whistleblowing policy in place that outlines the steps to be taken if an employee suspects another individual of fraud. To supplement such a policy, a mechanism that allows employees to anonymously communicate their concerns about potential fraud is recommended. It is important that employees are aware that there will be no negative consequences when “blowing the whistle”.

Management must also demonstrate that they actively follow up on all issues raised via the whistleblowing mechanism.

Also, people who whistleblow a fraud along with proof should be rewarded for their disclosures.

7. Create an organizational chart - Define the roles and responsibilities of all employees. This could include job descriptions, reporting lines/segregation of duties, mandatory job rotations, authorization policy, and leave.

8. Implement a comprehensive recruitment policy -?

Make sure your recruitment policy involves:

? past employment verification and seeking explanations of any employment gaps

? police checks – there are specialist businesses that can provide this information within 48 hours

? verification of qualifications – sight original documents or contact institutions that issued the qualifications

? reference checks

? credit checks, particularly for employees in finance roles and those handling cash

? using technology to research potential employees, including viewing social networking sites.

9. Monitor employee behavior - There are a number of employee behaviors that may indicate a heightened probability that an employee is committing fraud, including:

? the employee regularly works outside of business hours or rarely takes leave. Although they may

appear diligent, they may have other motives for being in the workplace unsupervised

? the employee appears to be spending or living beyond their means (like buying an expensive car, going on foreign holidays, etc)

? reports and reconciliations are not done (for whatever reason)

? tax returns and other compliance forms are lodged late.

10. Perform regular reconciliations at regular intervals - Regular accounting reconciliations (such as bank reconciliations, payroll reconciliations, and analysis between budget and actual figures) often make fraud concealment very difficult. The person doing a bank reconciliation should be different from the person doing the banking/payments.

11. Implement physical access control - Control physical access to premises, cash registers, computer systems, safes, and other security systems. For example:

? ensure doors, desks, and filing cabinets are locked

? implement systems that report on employee activity, such as who has viewed and altered data in your database

? consider installing electronic surveillance systems.

12. Investigate every incident/reporting of fraud seriously with professional skepticism.

13. In addition to the aforementioned, employers should also:

? regularly review financial statements

? Try and digitalize the payment & receipt system. Cash should be avoided. Also, deposit cash (if collected) and cheques daily and make sure the person doing the banking entries is not the person collecting/depositing the money

? secure blank cheques, signature stamps, and access to EFT payments

? never sign or authorize payments that are not attached with completed details about the payments & vendors.

? periodically check suppliers’ details, including bank account details, with the actual supplier

? only pay on original invoices

? review billing error complaints from customers

? engage an external auditor to audit books of accounts & internal controls

? periodically compare payroll payees with employee records

? ensure that all employees take annual leave during the year

? have a cross-training program in place to ensure that one employee is never the only person capable of a particular role

? in instances where they use a personnel agency, check their contract with the agency to see whether the staff hired through the agency have been subject to a police check or not

? question unusual accounting methods or unnecessary complexity in an accounting transaction or excessively long charts of accounts