Fundamentals of a Good Anti-fraud Program
Some fraud schemes have taken up to two years to detect. Illegal activity can be detected faster by having policies and procedures in place that include audits and monitoring, data access control, physical security, employee education and discreet ways to report fraud.
In the Accounting Department. Look at relationships between vendors and employees, such as familial relationships between vendors and purchasers or a sudden increase in contract awards to a particular vendor, which may lead to fraud, and set policies regarding those relationships.
A fraud monitoring program must include spot audits. Accounts should be reconciled daily with no variances, Safir says. That way, "you know immediately that you have a problem that requires further investigation. At some companies, their accounting department becomes too complex and they'll carry over imbalances"--a very unsafe practice, he adds.
Also, separate duties between accounts payable and accounts receivable. "You could train a nonaccountant to do your payables. That person would not be reconciling your pay statements like an accountant would," Safir says.
Surprise audits continue to prove effective in catching fraud. "If they know that corporate security is doing audits on the first Tuesday of the month, they take care of everything on Monday. But if they don't know they're coming, they're more likely to catch a fraud in place," Dorris says. Also, when employees know that a surprise audit looms, "they're less likely to [commit fraud] because the opportunity has been removed."
Simply checking financial statements can uncover fraud. "Why is there a tremendous increase this month in accounts receivable? Are they inflating numbers to make the bottom line look better, to increase earnings per share? Those don't require a tremendous amount of resources--that gives you some predication to look and see an anomaly--and investigate it a bit further," Dorris says.