Top 5 Steps to Avoid Corporate Fraud

  • 4 min read

What are five quick and easy steps to help you avoid fraud inside your company? Sub number one, you can compare your employee files and your vendor files. 

  1. The most common way for somebody to commit fraud against your company is to create a ghost vendor and divert money to vendors. It could be as simple as running a database search of employee addresses and a database search of your vendor addresses to match them up and see if there’s any overlap that could identify an employee who’s diverse in money as a ghost vendor. 
  1. View your check endorsements. So when you get your bank statement at the end of the month, either online or in the mail, look at the front and back of the check to see how they’re endorsed. If you wrote a check to XYZ Corporation, has it been signed over to Joe Schmoe? Well, maybe XYZ Corporation is a ghost vendor, especially for accounts payable checks. Take a look at the reverse side of the endorsement to see if it was deposited into a personal account and also to see if the signature is an individual signature or an endorsement stamp, which most companies would have. 
  1. Have mandatory bookkeeper vacation time and even key people making sure that nothing is illegal or improper. Actions that somebody is taking are not able to be covered up forever. So having some sunlight shine on that action by having somebody else do that job for a period of time—even if it’s a long weekend—some of these corporate frauds and embezzlement games are in our daily activities, and somebody has got to hide paperwork, hide deposits, and shuffle money around. And if they’re not there every day, they’re not able to maintain that fraud, so giving somebody a couple of days off, especially if they resist, is a good idea. I’ll take the money; I don’t want to take my vacation. Have mandatory vacation time for, especially, a bookkeeper, but even other key people should. 
  1. Spot check your inventory. If a company has any kind of inventory of product, merchandise, service, whatever it is, spot check that inventory, especially fast moving items. Look at your four or five top fast moving inventory skews, and then large scale, large dollar items. Look at those for a spot check. To see, are they all accounted for if you’re supposed to have 150 of them? Are they all there? Are there any that are mis-marked? Sometimes a way to divert inventory into an embezzlement is to take a high ticket item and replace it with something else, so it still gets counted. You don’t have to do it that often; you can do it once a month. You can pull two or three items and check them out, or have somebody check them out. 
  1. If you’re the executive or CEO, open all mail personally, including any incoming postal mail. If you have a large volume of mail where it’s physically impossible to do that, then switch the job around. Have somebody open it for two weeks, and somebody else do it for two weeks, and spot check some of it yourself, maybe one day a week. You say I’m opening the mail that way. There’s not going to be a person in your company who can count on the fact that they will always open the mail. Somebody else might do it tomorrow, and you as a CEO might do it next week. So they’re going to avoid schemes where they have to have access to that mail, those bank statements, those insurance policies, or any other thing that they need to have control over? 

Those are five steps. They can help you avoid 80% of corporate fraud cases that we end up investigating after the fact.

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