The ACFE, in conjunction with an impressive list of supporting organizations, is promoting “International Fraud Awareness Week” this week (November 13th – 19th).
Why, might you say, is this important?
Because fraud is a risk every business faces. In fact, according to the ACFE Report to the Nations, on average, businesses lose 5% of their gross revenues to fraud.
In my upcoming book The Thief In Your Company (look for it in January 2017),I explain that no organization is immune from the risk of fraud. From the smallest of companies to large publicly traded ones, from non-profits to government entities – fraud risk is real.
There are several contributing factors to clients who experience fraud, and they include:
· An “It Can’t Happen Here” attitude
· Implicit trust of employees
· Little to no oversight over financial transactions
· Lack of timely or accurate financial reporting
Every single one of my clients is shocked when fraud occurs in their organization. They simply cannot believe it to be true. They believe they are immune from this ever happening to them.
Take it from my client, a local hospital foundation. Earlier this year, their long-time Executive Director was sentenced to three years in prison for stealing hundreds of thousands of dollars by misusing the foundation’s credit cards. This woman was a rising star in the community, someone who had contributed to successful fundraising campaigns for the foundation, and who was a beloved mother and friend.
Her fraud was uncovered by accident when a new assistant, who inadvertently intercepted and opened the mail, discovered questionable charges on the foundation’s credit card.
The monetary losses of the organization did not stop when the fraud was uncovered. The foundation has suffered with declining contributions as a result. And we have not begun to discuss the emotional impacts of the crime on the board members, the employees of the hospital and its foundation, and on many members of the local community.
The impacts of fraud go beyond the loss of money. The heartbreak is palpable.
Whether your organization is large or small, there are simple, yet effective, steps you can take to mitigate your fraud risk.
The ACFE has a great infographic on actionable items to address fraud risk.
A few additional points come to mind:
1. First, you have to Look
The #1 fraud schemes are fraudulent disbursement schemes. Simply put, your money is in the bank and your employee uses those funds to benefit themselves. The best way to uncover these frauds includes a simple step each month, which I’m finding more and more organizations neglect. Namely, a thorough review of:
i. Bank statements and cancelled check images
ii. Credit card statements
iii. Payroll reports
2. Pay attention to the numbers…and your gut
My clients often tell me that “something wasn’t quite right”. Or, “I kept getting information that was inaccurate or late”. A doctor client of mine explained to me that he was seeing more patients and thinking about hiring another practitioner, yet he was taking less and less money home. His office manager was stealing hundreds of thousands of dollars from him.
All of my clients had “bad bookkeeping” and/or a “gut feeling”, but they never obtained supporting documentation to figure out the source of the problems.
3. Leave the door open
There are likely others in your organization who know when something isn’t right. They may even know about a specific scheme or suspect an individual. Whistleblowers must overcome immense internal and external hurdles to find the courage to come forward. Typically, it is because the fraudster is the most well-liked or trusted person in the organization. Or, the fraudster is concerned about backlash or jeopardizing their job. Or, they simply don’t believe they will be believed.
Talk about the importance of whistleblowers in your organization. Celebrate when those people come forward with new ideas or innovations, and follow through when they provide a tip regarding a problem.
In my office, every week is “fraud week” – we have no shortage of fraud cases we’re working on at any given time, and new cases come in quite regularly these days.
It is my hope that International Fraud Awareness Week will be successful in doing what it sets out to do, creating awareness on the topic of fraud and fraud risk. Take a few simple steps today to talk to your board members, colleagues, management, and staff on this topic. Assess controls in key areas. Implement a hotline. Call your bank and get those statements and check images returned to you each month. Ask questions about those financial reports and request the source documents that back up some of those numbers.
Take your newfound awareness and use it to create the change necessary to reduce fraud risk in your organization.
Tiffany Couch, CPA/CFF, CFE is the founder and Principal of Acuity Forensics, a forensic accounting firm located in the Pacific Northwest. She is currently the Chairwoman of the ACFE Board of Regents and is the author of the upcoming book, The Thief in Your Company.