Litigation Advisory Services Blog

How to Implement Internal Controls to Prevent Employee Theft

You think it can’t happen to you. Your employees are honest, you trust them and they would never steal from you. But no company is exempt from the threat of fraud.

Fraud is out there, it is increasing and companies need to be more vigilant. They need to not be so trusting and raise their level of awareness.

How does fraud occur?

Ninety percent of fraud occurs in disbursements, money leaving the company in the form of unauthorized checks, electronic funds transfers and debit transactions. Employees are not as likely to steal cash receipts, but it’s easy to write a check to yourself, submit your personal credit card statement to the corporation or commit fraud on an expense report.

There are many ways that employees can unlawfully enrich themselves, so within those mechanisms, there have to be policies and procedures in place. For example, there should always be substantiating documents for disbursements. Too many companies simply pay bills without documentation and aren’t conscientious about the fact that they may not be paying for what they think or that there may be overcharges. They just don’t take the time to approve invoices and match them to other corroborating documentation.

Fraud is occurring more often in this economy as a spouse loses a job or an employee is threatened with home foreclosure or is struggling to pay their bills. And once they have a reason or rationalization, the next step is figuring out how to exploit the system to fulfill that need. Smart people with criminal intent can identify the internal control weaknesses. They know you aren’t looking at the bank statements and invoices to be paid or that the check plate or blank check stock is not secured. They know that you trust them and, as a result, will take advantage of that.

Click here for more ways to prevent employee theft.

Have more questions about implementing internal controls? Post a comment below or contact our Valuation & Litigation Advisory Services Group at 440-449-6800.



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