By Jeffrey Willoughby
Special to the Legal
We often counsel people about the best methods to prevent fraud or misappropriation, but more often we are consulted after the event. As Warren Buffett once said, “It’s only when the tide goes out that you learn who’s been swimming naked.” After you have been defrauded is the wrong time to ask about things that could have been done to prevent it.
While no plan can completely insulate a business from fraudulent activity, here are four things nearly every business can do to increase the chance of detecting or preventing fraud from occurring, or “fraud-proofing” your business.
1. Have bank statements delivered to your home address.
Many businesses have a bookkeeper or accounting person who handles all aspects of the accounting function and cannot afford the personnel to achieve optimal levels of internal controls. We suggest having the bank account statements sent to your home address. Once they arrive, open them.
Placing an unopened bank statement on the bookkeeper’s desk may send the wrong message, but the appearance that someone is checking the statements may be enough of a deterrent to make an employee think twice about committing a fraud where bank transactions are involved.
2. Physical addresses for vendors and employees.
Every person or company that is paid for goods or services should provide a physical address. Post office boxes are difficult to track and often can be used for fictitious vendor or ghost employee schemes.
A physical address is easy to locate and there are other resources, such as property tax records, a company may use to verify the person or company located at that address.
3. Mandatory vacations.
Every person, without exception, should be required to take a week-long uninterrupted vacation. Our firm was hired on a case where a bookkeeper was discovered to be committing fraud after missing several days from work unexpectedly. This was someone who had never taken a day off from work.
The fraud that was uncovered went back several years and could have been prevented or discovered years earlier had the company required all employees to take a number of uninterrupted vacation days each year.
4. Two signatures.
As simple as this one sounds, there are companies that do not require multiple signatures on a check of any size. Not that every check needs two signatures, but two signatures for all checks more than a certain value is a good policy. That value can be whatever management thinks is material enough to warrant a second set of eyes and is a good way to make sure no one walks away with the store in one trip.
These steps are not a complete safeguard against fraud, but are intended give the reader some practical advice and simple steps to take to make a stronger stand against potential fraud. Each of these recommendations can be implemented relatively easily with little to no cost to the company. Regardless of which measures are implemented, you must be diligent in enforcing them. A fraudster only needs to succeed once to get what he or she wants, while you only have to fail once to cost the company money. Applying these measures may not fraud-proof your company, but may make it a little harder for the fraudster to succeed. Also, you may uncover a fraud scheme a little earlier than you otherwise might have.
Jeffrey Willoughby is a senior associate with Forensic Resolutions Inc. in Haddonfield, N.J.