Serving Businesses
in the Dallas/Ft. Worth Metroplex

Combating Workplace Fraud and Embezzlement

November 2017

By Jerry Murray 

Headline: Company Owner in Shock Following the Discovery of a Betrayal by a Long-time Employee

A trusted employee of 25 years has been caught embezzling from his employer. Crime has been going on for several years. Investigation underway……loses in excess of $100,000 are expected.

The essence of the above story…..Mr. Motive meets Ms. Opportunity who then meets Mr. and Mrs. Rationalization….is played out every day in a company near you. You hope your company is not the next storyline, but is hoping the best defense you can offer up?

There are many ways to combat workplace fraud and embezzlement in a cost-efficient manner. Ask yourself the following questions:

Have I assessed my risks – what could go wrong, how could it go wrong and how bad could it be?

For example, if someone has complete control and access to a petty cash fund of $500 and it goes walking, it’s probably not the end of the world.

However, if someone in your company has the ability to initiate, execute and cover-up a wire transfer of a million dollars to a personal Swiss bank account, it might be the end of your company’s financial life.

Have I responded effectively to significant risks?

Your response to significant risks identified in the first step will vary depending on the circumstances under which your company operates.

For example, in smaller organizations, you simply cannot afford to have extra personnel just to make sure there is a separation of duties in critical roles.

Most folks who commit fraud do not expect to get caught. So to foster that fear of getting caught, you want to create the “perception of detection” by having your books, bank reconciliations and other vital assets checked on a random regular basis.

Do I reassess and test my controls and processes periodically to be sure they are working effectively? Do I also recognize when my circumstances and related risks have changed?

For example, let’s say you go from one location to two locations. Do the bells go off in your head that your risk profile has changed and that a reassessment is needed?

Organizational fraud is akin to a cancer in an organization….(a) you hope you never have it and (b) if or when it shows up, the situation could already be dire.

According to the 2016 “Report to the Nations on Occupational Fraud and Abuse” published by the Association of Certified Fraud Examiners, here are some eye-opening statistics:

  • The median loss of an occupational fraud incident is $150,000
  • Of the cases studied, 23% of them involved losses of $1,000,000+
  • The median duration of an occupation fraud incident is 18 months, and the longer it last, the more it costs
  • And, tips from employees, customers, and suppliers were the most common ways fraud was detected

So developing and effectively communicating an anti-fraud program to your employees, customers and suppliers can be very cost effective. The cost of the program pales in comparison if you stop one fraud or embezzlement from happening in your company. Said differently, it’s very much like performing routine maintenance on your vehicle. If you don’t invest as you go, then you are going to have a break-down resulting in a substantial cost in the future.

Your CPA is in an excellent position to help you through all the steps to establish an effective anti-fraud program. The professionals at Goldin Peiser & Peiser have experience with risk assessment, developing and maintaining internal controls, and conducting random spot checks. On top of that, we understand the business world. Over the many years advising and working with business clients, we have gained significant insight as to what systems works well to protect your company and what deficiencies put you at risk. Contact GPP today!

Jerry Murray is both a CPA and a Certified Fraud Examiner (CFE) in our firm and would be happy to take your call or email with any questions you may have. He can be reached at 214-635-2519 or email him at jmurray@gppcpa.com.

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