Fraud Prevention Tip #23: Ask “How Do I Know?”

Before you sign your good name on any business document, get in the habit of asking this simple question:

How do I know?

Asking “How do I know?” – or HDIK? – causes us to block out distractions, focus our attention, and be more present as we review and approve transactions.

Here are three suggestions for implementing this easy idea.

1. Verify important details.

• Make a habit of spot-checking all important details and even a few random minor details in transactions. Ask for more support.

• Make sure that the prices and quantities you see on supplier invoices are supported by Purchase Orders or contracts. Verify the proper treatment of charges for shipping, taxes, special handling and any other add-on charges.

• At the moment you take delivery from a supplier, make sure that someone counted what was received. Match their count sheets to invoiced quantities before payment.

• On employee and contractor time sheets, make sure that hours charged make sense. Focus on individuals who report the highest hours, and ask yourself, “How do I know these hours are correct?”

• When reviewing travel and entertainment costs, always apply a sanity check. Ask yourself, “Is this the way we spend money here? Was that expensive meal, limousine ride, or extra hotel night really consistent with our business culture? How do I know the trip was even needed?”

• When reviewing minor purchases made with purchasing or credit cards, spot check what was purchased by going to the website of the selling organization and searching for the items purchased by description or product code on the receipt.

2. Utilize a ‘Show me how you’ versus a ‘Did you’ approach.

For example, “Show me how you reconcile the bank account. Tell me the questions you ask as you do it. Walk me through it.” Or, “What thoughts go through your head as you’re approving an expense account or a journal entry?”

What reviewers think about hints at the quality of an anti-fraud control, not just the existence of that control.

3. Make sure your people know they’re responsible for the results.

Before signing off on journal entries, exceptions, disbursements, reconciliations and other documents, make sure that your people know they’re responsible for the results. Tell subordinates, ‘If you sign it, you’re accountable. We want things done right. We want you to take the time. Don’t sign it unless you’re sure it’s right. And if you’re not sure, come to me and we’ll work it out together. ‘

Making “How do I know?” a reflex part of your approval routine will allow you to better deter and prevent fraud, and quickly catch what slips through your anti-fraud defenses.

John J. Hall, CPA

John J. Hall, CPA, is an author, speaker and results expert who presents around the world at conventions, corporate meetings and association events. Throughout his 35-year career as a business consultant, corporate executive and professional speaker, John has helped organizations and individuals achieve measurable results. He inspires audience members in corporations, not-for-profit organizations and professional associations to step up, take action and “do what you can.”