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Mary Schaeffer
Mary Schaeffer

What You Can Learn From Benjamin Franklin

Eight often overlooked, yet simple, tactics to prevent fraud in your firm.

October 7, 2010
by Mary Schaeffer

When Benjamin Franklin wrote, “an ounce of prevention is worth a pound of cure,” he probably wasn’t thinking about fraud. But, that adage certainly applies, especially to your employees. The problem all executives face is they can’t identify those few rotten apples. What’s worse is the tendency to let our guards down with long-term dedicated employees who’ve toiled diligently, often forgoing vacations in order to keep the company running smoothly. And that is precisely where the greatest risk lies. The biggest losses come from thefts made by long-term trusted employees when appropriate controls and best practices are ignored.

Bad Practices to Avoid

What follows is a list of bad practices that should be avoided at all costs. Allowing these practices simply makes it easier for fraud to flourish.

1.  Don’t let your guard down around long-term trusted employees. Use the same tight internal controls, segregation of duties and vacation policies for all your employees.

2.  Returning checks to requisitioners is not an inefficient payment practice. This demonstrates poor internal controls and is a favorite with employees stealing from their employers.

3.  Rush checks (sometimes referred to as ASAP) checks are a breeding ground for crooks. Often the appropriate backup is missing and the item is paid for twice. Experienced crooks know if they call up a company and raise a stink they are likely to get a check “rushed” to them, even if they do not deserve it.

4.  Petty-cash boxes are an invitation to trouble. Unless there is a very compelling reason, get rid of them. They are no longer necessary.

5.  Mandate that managers review every T&E (travel and expense) report they approve. A few companies have gone so far as to terminate managers who have approved clearly fraudulent or inappropriate expenditures. Others are making it part of the annual performance review.

6.  Set card limits. When using purchase cards, set judicious card limits in relation to the need of the person given the card, not the person’s title.

7.  Canceling p-cards. Immediately cancel the p-card and/or T&E card of any employee whose employment has been terminated regardless of who initiated the change.

8.  Insist that every employee take his or her vacation. At least five of those days should be taken consecutively. And, during this time, the employee should not perform any of his or her duties from home.

Conclusion

While these steps will not completely end fraud in your organization, they will make it more difficult for those few employees who are tempted to steal. After all, it is your employees who know your organization best and can figure out where the weak links are.

Additional Resources Managing the Business Risk of Fraud  (PDF)

Conducting Effective Interviews (PDF)

AICPA Forensic and Valuation Services


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Mary S. Schaeffer is the author of over a dozen business books includingTravel & Entertainment Best Practices (John Wiley & Sons) and Fraud in Accounts Payable: How to Prevent It (John Wiley & Sons). She is the publisher  of Accounts Payable Now & Tomorrow newsletter, a monthly publication for executives concerned about internal controls and cost control in their payment function, writes a monthly newsletter, a free weekly ezine e-AP News, speaks at accounts payable webinars, seminars and conferences and directs the organization’s consulting practice.