Fraud in the Corporate World
Itís a lot worse than you think.
December 6, 2007
by Mary Schaeffer
Preliminary results from a new survey conducted by Accounts Payable Now & Tomorrow newsletter last month found fraud to be more prevalent and commonplace in the corporate world than was previously believed. More than 86 percent of survey respondents indicated that at least one organization they had worked for in the past 10 years had been a victim of some sort of fraud. While most of the reported losses were not overwhelming, this indicates a pervasive pattern that most readers just cannot get away from (see related story). What follows is a look at a few examples reported by survey respondents along with recommendations on how to prevent fraud in your organization.
Here is a small sampling of the stories reported by the survey participants. They demonstrate the type of activity that goes on more than infrequently in the corporate world. They also reveal, at least in my opinion, a level of brazenness (“chutzpah” to you New Yorkers) and a certain amount of stupidity on the part of the fraudsters.
What Can You Do?
For starters, impress upon your approvers the very strong imperative to review every expense report before signing off on it. The majority of managers routinely approve travel and entertainment reimbursement requests with only a cursory review. It should not have been the processor who recognized the reused receipt, but the approver. Remember, most internal fraud is committed by long-term trusted employees.
Don’t overlook the need for strong internal controls and appropriate segregation of duties. These should extend to the master vendor file, a function that is often overlooked when putting fraud protections in place. These controls are crucial not only for preventing fraud in the first place but for uncovering it before it gets out of control.
Whenever employee fraud is suspected, review 14 months of T&E reports at the same time. Identify a random sample of employees each year and review 14 months of each of their T&E reimbursement requests.
Returning checks to requisitioners is a very bad idea. It demonstrates poor internal controls and is the vehicle used by a good number of scheming employees to scam money from their employers. Yet, the number of organizations that still allow this poor practice is mind-boggling.
While it is impossible to completely eliminate fraud, you can take steps to make employees think twice about considering it. The techniques discussed above will help you avoid the fate of the three organizations discussed in the case stories above and protect your own good reputation as a manager.
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Mary S. Schaeffer is the author of more than a dozen business books including Controller and CFO’s Guide to Accounts Payable. She is currently working on a book about fraud. She is the president of CRYSTALLUS, Inc. a publishing, training and consulting firm focused on payment issues. An admired speaker, she will discuss fraud prevention in detail in Accounts Payable Now & Tomorrow’s December Webinar on Fraud in the Real World.