It doesn’t happen here! Not to our business! Our employees would never steal!
We commonly hear comments like these when our forensic team is brought in to investigate a possible embezzlement. No one wants to believe their trusted employees would pocket money. But it happens here, it happens everywhere. And it occurs more than anyone would like to believe.
So, what makes these fraudsters steal from their employer, and how can you prevent and/or detect fraud in your business?
The Four ‘B’s
Our forensic team has years of experience learning why embezzlers steal. Forensic accountants have discovered employees generally embezzle for at least one of the four “B”s.
These signs, or red flags, let an employer know that an employee may be struggling and may need help. If you have an employee that is exhibiting some of these signs, it is important to examine the employee’s job duties and identify what risk/opportunity the employee may have to steal from the organization.
According to the 2018 Association of Certified Fraud Examiner’s (ACFE) Report to The Nations, other top red flags include:
It’s important for business owners to remember when we are talking about fraudsters embezzling from a business, it’s not always money they are taking. It may be embezzlement in the form of inventory or payroll.
Inventory Theft Example
A past fraud investigation identified a fraud scheme involving an employee theft of $950,000 worth of medical and office supplies over a four-year period. The employee was responsible for all duties involving inventory from ordering to receiving and counting to recording. This employee stole these items from their employer, sold them online and used the funds for gambling (one of the four “B”s).
The organization noticed the large inventory adjustments being taken for these items but believed it was a business problem, not a fraud problem, until they eventually retained us. After a thorough a forensic accounting and computer forensic examination, this scheme was identified, documented and turned over to authorities for criminal prosecution and restitution.
Like many businesses, there are not enough staff and resources to implement perfect internal controls to prevent all frauds from happening. That’s okay! Although a business may be unable to prevent fraud from occurring, the business should be able to detect fraud to minimize any losses.
Some common preventative internal controls include:
The following detective controls can be helpful in identifying fraud:
Learn more about Preventing Fraud at your Organization
According to the latest ACFE Report to The Nations, lack of internal controls is the leading reason fraud occurs.
Don’t let your business be the next fraud victim in the news. Evaluate your current internal controls, educate yourself and your staff on possible red flags and implement proper preventative and detective controls. It’s a good practice to have annual discussions with staff regarding the internal controls your organization has in place to prevent and/or detect fraud. Increasing the perception of detection is the most cost-effective fraud deterrent for any organization.