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Preparing One Document Can Reduce the Likelihood of Your Company Being a Victim of Embezzlement

National statistics and our own first-hand experience indicate that internal fraud and employee embezzlement is not going away anytime soon.

So what’s the easiest and least costly step that a company or organization can implement to combat the hidden threat of employee misappropriation, theft and fraud?

Perform annual background or credit checks?  They can weed out those with prior arrests or civil claims, and alert you to a potential red flag, but some employees who have never committed theft, when given the opportunity – and need – steal.  In fact, many are first-time offenders.

Have proper segregation of duties? While certainly a great step, reduced accounting department budgets and/or staff make it too costly to have these days.

Conduct a preventative forensic risk assessment?  This is the most prudent approach that an employer can take, no doubt about it. However, a properly performed assessment can take several days of evaluation, testing and employee interviews.   While recognizing the need, employers often don’t wish to proceed because they are not convinced of the corporate value of such an engagement considering the cost. (I wholeheartedly disagree.)

Cameras? Annual Lie Detector Testing of Employees? Fingerprinting? No, No, No.

Companies that institute a corporate fraud policy have lower occurrences of employee misconduct and thereby reduce their overall risk of internal employee theft. And best of all, it is a relatively inexpensive fraud prevention tool that is often overlooked.

What is a fraud policy?

A fraud policy is NOT a paragraph or page included in an employee handbook.  A fraud policy is not a conflict of interest policy, nor is it a document that is presented and signed by the new hire on the first day of employment, placed in an HR folder and never seen again. Rather, a fraud policy includes the following:

  • A fraud policy is a standalone document that describes fraud and can even identify likely examples specific to each business. The document shares management’s thoughts on the topic and genuine concern for deterring it as well as the negative effect that such behavior has on the company’s morale and profitability.  Management’s response of aggressive criminal prosecution, employment termination and complete restitution (including reimbursement for all outside legal and accounting costs incurred) are all spelled out in black and white.  This approach is commonly called “setting the tone at the top.”  The message should be strong and have a no-nonsense tone.
  • A complete fraud policy includes the steps that an employee should take if any fraud is suspected. The employee is encouraged to report employee misconduct to executive management or anonymously (by use of an identified fraud hotline number) to the company’s legal counsel, forensic CPA or other independent third party.
  • Every effective fraud policy requires management and employee interaction. An annual face-to-face meeting is most effective.  This provides management the ability to once again reinforce the anti-fraud tone at the top.  In the document, the employee is afforded the opportunity to communicate any questionable observations. The employee also acknowledges that he or she hasn’t committed any unauthorized and/or fraudulent acts. In addition, the policy enables management to orally inquire as to any potential fraud noticed by the employee.
  • Every year the employee and employer’s representative sign the fraud policy acknowledging receipt and understanding. The original is kept in the employee’s personnel file and the employee is provided with a signed copy for reference.

Having the employee and management on the same page is valuable in every aspect of every business.  Fraud prevention is no exception.  A properly drafted and annually executed fraud policy is a cost-effective and proven fraud deterrent.

Frank A. Suponcic, CPA, CFE, CFF is a Partner in Skoda Minotti’s Business Valuation & Litigation Advisory Services Group where he regularly assists clients with fraud assessments, forensic investigations, economic damage claims, commercial disputes, divorce, and labor relations. 

He can be reached at (440) 449-6800 or via email at

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