Fraud Prevention Tip #49: How to Deal with Employee Theft

Fraud Prevention Tip #49: How to Deal with Employee Theft

Anti-fraud efforts usually lean towards managing external threats. But your largest exposure is from employees simply because they are already inside your circle of trust.

When we find out that a trusted employee has been stealing from the organization, it can be really difficult to know how to proceed. The theft in question could be anything from taking inventory or supplies for personal use or for resale, adding fictitious costs to travel and other out of pocket reimbursement requests, putting false information on time sheets, engaging in intellectual property theft, or profiting from shadow deals with suppliers, customers or contractors.

Fraud Prevention Tip #49: How to Deal with Employee Theft

THE ANTI-FRAUD TOOLKIT
Let’s be honest. The simple fact that you are considering The Anti-Fraud Toolkit says a lot. It tells me that you are a special person. A true leader in the anti-fraud effort – regardless of your position in the organization chart, your length of service in the business environment, or what your technical specialty areas might be. You are unique in your intention to attack fraud risks – and to do something about it.

Simply put, there’s no one size fits all solution to addressing theft and other fraud by employees. But you have to act. You simply can’t allow the disease of deception to take root in your business.

Here are three suggestions to get you pointed in the right direction.

• Get Help. It’s a rare business leader who has sufficient background in fraud issues to handle cases of employee theft by themselves. Get the help you need to protect all involved, including honest employees. Start with the legal, accounting, human resources and technology experts who are already part of your core business support team. Get advise from qualified professionals – ideally before you’re faced with a fraud event. Outline a comprehensive response plan now before it’s needed. Then execute it objectively should an event be detected.

• Don’t Delay. It’s time to park your disbelief and anger, and get started on taking care of the problem. Employees who steal have no place in your organization. It’s time to stand behind your policies of zero tolerance for cheaters. You’ll need to proceed efficiently and professionally towards a solution that balances the facts of the case with the desire to get it all behind you. But be careful not to let uncertainty and indecision get in the way of what needs to be done. Get help, then take action.

• Learn from What Happened. OK, you got taken by a trusted staff member or manager. It happens, so it’s important to get past the issue at hand and move forward having learned important lessons. Think about how controls could be tweaked without getting in the way of efficient business practices. Analyze how you could be a better overseer of transactions and activity without holding up progress. Recruit your honest employees into a stepped up campaign to make sure it never happens to you again.

When trusted employees steal from the organization, it violates everything you and the many other honest team members hold dear. Out of respect for the honest majority, get help, take action, and adjust daily practices based on lessons learned.

John J. Hall, CPA

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 38-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.”

 

 

Fraud Prevention Tip #48: Suggestions for Small Businesses, Small Government and Not-for-Profits

Fraud Prevention Tip #48: Suggestions for Small Businesses, Small Government and Not-for-Profits

The Anti-Fraud Toolkit

The Anti-Fraud Toolkit Structure
In 9 modules, more than 6 hours of recorded video lecture, over 250 PowerPoint slides, and many practice ‘To-Do’ action items and practice tools (downloadable in each module), you’ll get the step-by-step, turn-by-turn instructions you need to take action right now. Short on theory and long on action steps, the lectures and tools in each module will enable you to take confident, effective action by building on the successes I’ve witnessed in my clients all of these years.
You’ll also get guidance on what not to do in the fight against fraud – to help you avoid common mistakes, focus your precious limited energy, and avoid undermining your own efforts through inefficiency and uncertainly!

Most smaller businesses, local governmental entities, and not-for-profits face the inherent risk of insufficient staff and limited control resources. These special challenges require extra effort by anti-fraud leaders. Here are seven ideas that will help.

  • Create a written Code of Conduct that addresses routine and non-routine situations staff will encounter in performing their work. Provide examples, short cases and answers to Frequently Asked Questions. Be wary of boilerplate terminology. Focus instead on meaningful real-world guidance for conduct.
  • Due to limitations in staffing and inadequate segregation of duties controls, managers should compensate by spot checking and re-performing the work of subordinates. Make this ‘quality check’ a daily habit.
  • Require that approvers carefully review all disbursement documentation prior to approval. Verify details, ask questions, and when in doubt, choose to follow up until a valid verifiable conclusion is reached.
  • Have organization bank account and credit card statements sent unopened directly to the chief executive. This executive should review all statements in detail as soon as they are received.
  • Verify the existence and legitimacy of all first-time payment recipients.
  • Make everyone take uninterrupted vacations or other time away from their jobs. Have other staff fill in for them and complete their work while they are away. This practice builds skills and acts as a deterrent to wrongdoing.
  • You simply must perform meaningful criminal background checks on employees and higher-risk volunteers. There’s no easy way around this one. Those terminated for cheating at prior employers know they need a new job right now. No delay. And prime targets for new jobs for these folks are the smaller business, governmental entity or not-for-profit that everyone knows has limited resources and staff to check backgrounds.

Comply with the privacy, anti-discrimination and other applicable laws. Beware of blanket policies that prevent hiring those with prior criminal records. Get competent legal advice and find a way to get these reviews done

John J. Hall, CPA

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 38-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.”

 

 

Approving Travel and Entertainment Expenses

Fraud Prevention Tip #37: Approving Travel and Entertainment Expenses – Good Questions to Ask

Many employees, contractors and consultants incur travel, entertainment and other out of pocket costs while on business trips. And fraud and abuse in out of pocket reimbursement is a well-known concern.

We’re expected to know the details of these trips in sufficient depth to be able to competently review the expenses submitted for reimbursement. That’s great in theory, but the process breaks down when supervisors, managers and executives aren’t taught what to look for at the moment of approval.

Here’s a list of questions to get you started. It comes from a survey of over 300 auditors and fraud experts who attended a recent conference presentation I provided.

Take a quick look at this long list and pick out the eight or ten items that relate to your unique business environment. Consider creating a checklist to keep close at hand the next time you are tasked with approving someones expenses. And share your checklist with others.

Managing Fraud Risks in Procurement and Contracting

Managing Fraud Risks in Procurement and Contracting

All business entities have fraud risks. But exposures in procurement and contracting often top the list of what can go wrong. Among the many fraud risks that must be proactively managed is the possibility that third party suppliers and contractors will take unfair advantage of the relationship, entice employees into questionable practices, and commit wrongful acts or outright fraud. This program addresses the fraud risks inherent in procurement and contracting, and will present solutions for managers and auditors interested in guarding their organizations against the costs and other negative consequences of misconduct and fraud. Short on theory and long on practical ideas, the program will give participants the tools and techniques they need “on the job”. Case examples will highlight not only what can go wrong, but what participants can do about it in their own organizations.


1. What is the business purpose of the expense? Is it reasonable for the person claiming the expense?
2. Are original receipts or other support attached for every item claimed (as required by policy)?
3. Is the expense allowable under organization policies?
4. Are the costs claimed ‘reasonable’ considering organization culture, policy, locations, etc?
5. Does the type of expense make sense given the type of travel?
6. Is per diem being abused (compare with dates and times of travel)?
7. Is there an unusual volume of ‘cash paid’ transactions normally charged to credit cards?
8. Are hand written receipts appropriate and reasonable (taxis, minor meals, supplies)?
9. Is this a duplicate expense (check prior expense reports and direct bill items such as conferences)?
10. Are meal receipts itemized (showing food, alcohol and entertainment charges separately)?
11. Were items claimed for reimbursement that are specifically prohibited by policy (alcohol, dry cleaning, hotel room movies, cover charges at clubs, first class air)?
12. Is the expense report ‘sloppy’ – a possible sign of attempt to mask unreasonable or unallowable charges?
13. Is the stated business purpose valid?
14. Is normal commuting mileage deducted (if required by policy)?
15. Were any costs split to avoid allowable maximum?
16. Where appropriate, verify that the place of business actually exists (for example, call the phone number printed on the receipt).
17. Recalculate tips and taxes on meals. For unreasonable low tips or taxes, ensure that the base amount of the receipt has not been inflated.
18. Verify charges for entertainment, checking who was entertained, business purpose and actual type of entertainment provided.
19. Spot check charges that fall below the threshold where receipts are required.
20. Verify that cash advances are reconciled to actual expenses on a regular and timely basis.
21. Compare dates with weekend days, local holidays and special events (Super Bowl, NASCAR, Wimbledon, World Cup, other sports playoffs, football bowl games).
22. For attendance at conferences and all day meetings where per diem or meal charges were also claimed, verify whether meals were provided directly by the host organization.
23. Compare date, time and address on machine printed receipts – compare to person’s calendar or electronic meeting schedule (air, hotel, time-stamps on parking receipts, tolls and taxi receipts).
24. Tie mileage to vehicle logs (where applicable) or map programs (MapQuest, etc.).
25. Were preferred travel partners utilized? If not, why not?
26. Are the charges allowable and properly reported under FCPA and international gift and entertainment regulations?
27. Are currency exchange calculations accurate and consistent with organization policies?
28. Has anything on the receipts been altered or ‘whited-out’ (dates, amounts, vendor name, other fields).
29. Review the detailed bill (restaurant receipt evidencing what was ordered), not just the credit card slip.
30. Verify tolls. Insist on statements for ‘EZ Pass’ and similar toll transponders.

 

John J. Hall, CPA

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.”

 

 

third party organizations

Fraud Prevention Tip #34: Tell Suppliers & Contractors How To Do Business With You

Healthy relationships with suppliers and contractors are critical to the success of pretty much every business organization. But blind reliance on these third parties can leave us exposed to many risks – including misconduct and fraud. Even highly ethical suppliers and contractors can see their integrity efforts undone by just one of their employees who handle your account. And if their employee colludes with your employee to commit fraud, all bets are off.

The best we can do is set the stage for success. We have to teach suppliers, contractors and any other third party organizations how to do business with us. Here are a few suggestions to get you on the right path.

1.Be crystal clear on required conduct. Make your Code of Conduct a key provision of all documents that spell out your relationship. It’s always nice if they have a Code, but make sure they certify compliance with your Code.

Supplier relationship management (SRM)

Managing Fraud Risks in Procurement and Contracting

All business entities have fraud risks. But exposures in procurement and contracting often top the list of what can go wrong. Among the many fraud risks that must be proactively managed is the possibility that third party suppliers and contractors will take unfair advantage of the relationship, entice employees into questionable practices, and commit wrongful acts or outright fraud. This program addresses the fraud risks inherent in procurement and contracting, and will present solutions for managers and auditors interested in guarding their organizations against the costs and other negative consequences of misconduct and fraud. Short on theory and long on practical ideas, the program will give participants the tools and techniques they need “on the job”. Case examples will highlight not only what can go wrong, but what participants can do about it in their own organizations.

2. Include Right to Audit language in documents covering all third party relationships. Not just contacts. Purchase orders, bids, and requests for quotations, engagement letters, leases, loans and any other deal document.

3. Finalize specifications before signing deals. It’s our job to be clear on what we’re buying, what we’re paying, and all other important procurement variables. Don’t leave it up to the other party to decide what you want or meant.

4. Once the relationship is underway, be involved. Monitor, check details, perform quality checks. Provide competent field verification where appropriate. Be organized and methodical in overseeing the results of third parties – especially service providers!

5. Zero tolerance for gaming behavior. If they act up, cut them off. Build in a legitimate ‘out’ to all third party deals in the event of wrongdoing or fraud. Zero tolerance is the only level that works. Period.

6. Perform or sponsor compliance audits. For construction, property management, technical services, advertising, IT services, outsourcing and many other areas where it’s difficult to determine whether we got what we paid for, send in the specialists. Your internal audit team is a great place to start. Otherwise, look outside for experts who specialize in the subject area, and arrange to get them in for what I like to call “Vendor Assurance Reviews”.

7. Be willing to say no and walk away. We need to feel a gut level of trust with our third party suppliers and consultants. If that confidence isn’t there, walk away. There’s always someone else out there that can step in and take their place.

Be explicit in defining your expectations of suppliers, contractors, consultants, business partners and all third parties. It’s our job to tell others how to do business with us. Don’t leave it up to them.

John J. Hall, CPA

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.”

 

 

Managing 3rd Party Risks

Fraud Prevention Tip #33: Special Attention to Managing 3rd Party Risks

One fraud risk area of special concern comes from relationships with third parties. Here’s why.

Your organization’s relationship with employees is governed by law, policy, and operating procedures. There exists a daily ability to supervise, monitor, reward, and discipline individuals. Information needed for these tasks is available with few barriers. Employees generally share the organization’s ethical standards. Deviation in individual behavior from those standards is often detectable.

The organization’s relationship with third parties is determined by the documents governing the relationship. Examples include contracts, purchase orders,

Managing 3rd Party Risks

High Impact Auditing: Practices that Pay

Every day, the expectations placed on professional internal auditors are on the rise. As a result, we all find ourselves in a constant state of “catching up” in order to meet the needs of management, board members, clients and even ourselves. This highly interactive program will provide proven ideas that can dramatically increase the daily effectiveness and perceived value of the individual auditor and the audit team. Participants will learn how to:
Identify the key areas where management and other client groups want and need attention
Define your role to fully meet the needs of the organization
Identify the behavioral adjustments needed to be more effective every day
Improve audit planning and performance to identify and address areas of importance
Develop audit steps that find important problems and opportunities
Get desired action from auditees and others
Demonstrate measurable value

engagement letters, loans, leases, sales agreements, standard terms and conditions, and other documents. Third parties have legitimate business interests that may at times be at odds with those of their customers and clients. If wrongdoing by third parties is suspected, it may be difficult or impossible to obtain records needed to prove or disprove the suspicion.

Suspected fraud by outside organizations with a trust relationship can be extremely challenging to pursue. Be as prepared as possible for these challenges. Make sure that the documents that define the relationship are clear on matters of fraud and other wrongdoing.

Where appropriate, make your organization’s Code of Conduct an integral part of any third-party relationship documents. Consider having the third party acknowledge their awareness and compliance with your conduct standards every year.

Also include appropriate Right to Audit language in third party ‘deal documents’ – again, where appropriate to do so. We recommend strong Right to Audit language in:

• Requests for Proposals
• Contracts (including the requirement for your Right to Audit be included in any sub-contacts or suppliers to the contract)
• Purchase Orders
• Engagement Letters with your professional service providers
• Any leases you sign as lessor where there is a cost pass through provision
• Standard Terms and Conditions

One last thing. Don’t just have Right to Audit provisions. Perform detailed audits of third parties performed by subject matter experts. If you’re not quite sure where to start, reach back to me at John@JohnHallSpeaker.com. We’ll get you pointed in the right direction.

John J. Hall, CPA

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.”

 

 

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