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.”

 

 

preparation for fraud incident

Fraud Prevention Tip #43: Build The Response Team Before It’s Needed

Near our home, there’s a city firehouse. Inside 24 hours a day are trained professionals ready to go when the alarm sounds. Their equipment is maintained in outstanding condition, their trucks are fueled, and their protective jackets, boots and helmets are already in place. They don’t wait for the alarm to go off before thinking through what they might need, recruiting their staff, buying equipment and getting their training. That’s already done.

That’s exactly the way you should look at you ability to respond to fraud incidents. Evaluate your fraud response needs during periods of calm. Not crisis.

Gaps in capabilities should be addressed before a fraud incident is being pursued.

As part of fraud risk brainstorming, think through what skills might be needed later if identified risks become reality. In many organizations, these skills do not necessarily need to be available in-house. But you should know exactly who to call if you need them in a hurry. Assess internal capabilities. Build relationships with outsiders before they are needed.

Here is a list of good places to start.

Legal Oversight

At the center of the response team are lawyers skilled in criminal matters. These attorneys should be able to provide quick response guidance to members of the investigative team. They should be available when needed, and provide oversight of the investigative process. Consider other legal needs that may arise, such as employment law, government contracting, procurement, international commerce, real estate, technology, intellectual property, and environmental law.

Investigators, Fraud Examiners, and Forensic Accountants

This group will comprise the core investigative team. While the roles of the three groups mentioned in the title above are similar, the specific subspecialties of each are important to have available. These skills may all be found in one person, or we may need multiple experts to fill the investigative needs.

Certified Fraud Examiners

While there are many sources of help, many Certified Fraud Examiners (Association of Certified Fraud Examiners, Austin, TX www.acfe.com) are experts in fraud issues and can bring first-hand experience to your fraud incidents. In many organizations, CFEs are an integral part of the investigative team.

Internal Auditors

If your organization has a formal internal audit function, this resource should be utilized in pursuing reported suspicions. Internal auditors have the capability to review issues from the inside: that is, they can often pull data, double check facts and interview employees quietly. This allows the organization to take initial steps in the incident response process without attracting a lot of attention.

Experienced internal auditors have expertise in internal controls as a core skill. They should be an active part of efforts to identify fraud risks and assess the adequacy of prevention and detection controls. Using auditing analytical procedures and tools (including computer-assisted audit techniques), internal audit can also surface fraud indicators for further investigation. Last, they are a critical resource to management in efforts to strengthen controls after a fraud incident has surfaced.

Information Technology and Computer Forensics

Few business fraud cases fail to touch on electronic records. Information technology expertise is needed to assess the risks to these records and to assist in the collection of necessary data stored in electronic form.

Computer forensics expertise is often necessary to preserve data that will be used as evidence in legal proceedings. Qualified experts in these fields should be formally on call if not on staff. These skills should be found before you need them, as response time to collect and protect critical data may be very short.

Human Resources

The response team should include human resources specialists with fraud background. Fraud involves people, and often those people are employees.

Rights and obligations need to be honored. Laws and employment contracts must be respected. Decisions must be adequately and appropriately documented. Mistakes must be avoided. The qualified HR representative can assist in all of these concerns, and should be a core member of the response team.

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.”

 

 

he Anti-Fraud Toolkit Structure

Fraud Prevention Tip #42: Be Ready to Respond

Here’s an exercise that will keep you awake at night. Assume that despite your best efforts at fraud prevention, you get hit anyway. What should you expect when fraud is detected?

Explode False Beliefs

Start by exploding these three myths:

1. We’re ready to address what might come up
2. The authorities will take care of most of it for us
3. The insurance company will give us protection from loss

It would be great if these three statements were true – and sometimes they are. But often they’re not.

• Unless you deal with fraud on a regular schedule, you’ll find that you and your leaders may be very much unprepared to respond.
• The authorities will do their best to assist you in pursuing wrongdoing – if you cooperate fully with them and you are willing to supply the information they need to proceed. They are busy people just like you. They have limited resources and other priorities – again just like you.
• The insurance policy is a contract with requirements you must meet before any losses covered by the policy are paid. Are you in compliance? Have you ever read the insurance contract?

Once you have counterbalanced any existing myths and flawed beliefs, then do these three things:

The Anti-Fraud Toolkit Structure

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!

Assemble the Team

There are inherent risks in responding to wrongdoing, misconduct and fraud. Legal, physical, career, reputation, regulatory, human resources and other risks should be managed by professionals with the requisite authority, background, resources, and interest. List the skills and relationships that will be needed when fraud is found. Recruit and prepare your team of experts in advance.

Prepare the Message

Before fraud is found (right now is a good time!) craft the basics of the message you may need to deliver to employees, customers, the press and others. Write out the bullet points of these messages before they’re needed. Be fully prepared to deliver these messages in an organized confident manner at the appropriate time and place, and by the appropriate authorized spokesperson. But get the basics on paper now when things are calm.

Put the Fraud Response Plan in Writing

Make sure that everyone in the organization knows who’s authorized (and who isn’t) to investigate, handle formal and informal information requests, and interact with any outside parties. Put this ‘crisis response plan’ in writing.

Correcting myths, preparing the team and messages and putting it all in writing isn’t everything, but it a foundation that will pay off many times over if you take care of it right now.

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.”

 

 

board members

Fraud Prevention Tip #41: Train Your Board Members

There is an assumption that once an individual is accepted into a Board position, they are qualified to provide governance oversight of the organization’s anti-fraud efforts. But for most Board members, nothing could be further from the truth.

History is filled with examples of corporate corruption and fraud at the highest levels that occurred right under the noses of the Board. And it’s not just highly-publicized for-profit organizations that are at risk. School districts, not-for-profits, municipalities, credit unions, universities, private foundations, family run businesses and dozens of others are at risk due to inadequate fraud risk management skills at the Board level.

Whose job is it to train Board members and bring their Fraud Risk Management skills up to speed? Strange as it may sound, it’s management’s job.

The Anti-Fraud Toolkit Structure

The Anti-Fraud Toolkit Structure | Module 2 – Leadership

The message of this module is simple: Nothing will happen without strong, visible, vocal executive leadership. And by ‘executive’ I mean the Chief Executive Officer – whatever their title may be in your organization.
The #1 executive must lead the anti-fraud charge. They must be willing to speak publicly and enthusiastically. They must provide you with the resources you need to initiate and sustain your anti-fraud initiative. They must embrace that fighting wrongdoing and fraud is a campaign waged over time with their continued support. It is not a once and done event that receives encouraging words but no meaningful follow-though. Your #1 job as an anti-fraud leader is to recruit and secure meaningful executive leadership support. Module 2 – Leadership will give you the specifics details of what you will need from the executive management team.

Here are three specific areas where the Board must be up to the task.

1. Oversight of the Organization’s Anti-Fraud Efforts

The Board must ensure that management has done a competent job of identifying fraud risks and putting into place effective controls and behaviors to mitigate those risks. And not just the risk of financial misstatement that consumes so much of Board and management efforts. They must also monitor the risks of significant misappropriation, misstatement of non-financial results, and corruption and shadow deals – especially where it relates to bribery of domestic and foreign officials. Of course the recent uptick in cybercrime and other exposures in the technology arena has even the best anti-fraud Board members squirming in the seats.

2. The Risk of Senior Management Override of Controls

It’s been proven too many times to count that no one in the employee ranks can survive taking on senior management when collusion at the top causes controls to be overridden and fraud to be perpetrated. Not even the Chief Internal Auditor or Chief Counsel. They may have legal remedies when they are fired for challenging the CEO, but no one I’ve ever encountered who has taken this route would do it again willingly. Only the Board can step in when the most senior executives are determined to cheat. That’s one of their key governance roles, and one of the fundamental reasons why the Board exists. To monitor and counterbalance senior management when needed.

3. The Risk of Fraud For the Organization

Not all fraud directly harms the organization, at least initially. Some schemes actually bring substantial benefit to the organization and its leaders. Intentionally misstating the safe use of products, illegally dumping toxic substances, and hiding the harmful effects of food additives and chemicals used in the home are just three examples. Board members must be aware of fraud and other wrongdoing that benefits the organization, and be willing to take effective steps to prevent these risks from ever happening.

Of course, there are many other Fraud Risk Management challenges that all Board members must accept. You can help by teaching them what they need to know and do.

We can help as well. Take a look at our strategic partner for Board quality and effectiveness. The Center for Strategic Business Integrity was recently formed specifically to improve the quality of oversight by Board members and their Trusted Advisors. Take a quick look: www.CenterSBI.com. Might be just what you need.

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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