Minimizing fraud in your organization

  • August 19, 2014
  • Bruce Armstrong

Studies and experience show that few organizations are immune from employees that wish to take steps to supplement their income if given the means, opportunity and motive. Eliminating fraud is almost impossible, but there are factors organizations and in-house lawyers should consider to avoid catastrophic loss.

One way to minimize fraud in an organization is by keeping out the individuals most likely to indulge in it. Potential hires must know that their résumé will be intensely scrutinized, with all references checked. This can be supported by third party services that arrange for criminal checks and verify academic qualifications.

Look for gaps in employment, and never bypass a check with the person’s current or most recent employer. Senior management, with its top-level view of the organization, has an ideal opportunity to forestall fraud through a review of the monthly corporate bank statement. A senior non-signatory manager should independently receive the bank statements and cancelled cheques directly from the bank each month, personally review them and ask questions about anything that is not crystal clear, before accounting starts its reconciliation procedures.

Many organizations’ drives to cut costs and boost productivity have inadvertently eliminated or watered-down some of the previous controls in place such as double-signature cheque signing, separation of duties, compulsory holidays and job rotation.

Controls such as these need to be fundamental to how any organization does business. Are customer files, accounting records and other sensitive information protected by computer passwords and available only to those that have the requisite authority and require access? Is there a locked box for shredding nearby, and are employees instructed as to what is recyclable and what must be shredded?

Implementing a hotline and ensuring employee whistleblowing anonymity has proven to pay tangible dividends. Anonymity can be enhanced by contracting this service out to a third party providing confidential phone lines and Internet resources for reporting real or suspected fraud occurrences.

Employees should understand that there is zero tolerance for fraud and once an offender has been located and apprehended, he/she will be immediately terminated and the events will be made public to all employees.

If the culture of the organization includes a management team that “walks the talk” with respect to adhering to high ethical standards, employees will be more encouraged to speak up. Above all, employers should strive to create an atmosphere where the employees have a voice and feel like they are making a meaningful contribution to the corporate objectives. A happy employee is less likely to victimize his or her employer.