Preventing Employee Fraud: 10 Simple Ideas for Reducing the Risk

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To Our Clients and Friends

The unfortunate Madoff scandal was extraordinary for its sheer size and audacity. It reminds us that malfeasance (doing bad things) occurs in all sorts of organizations of every shape and size.

So make sure that you have taken every reasonable precaution to prevent fraud or theft in your company, and that, in the event it does occur, you are adequately protected by a surety bond.

Attached is a checklist which we have developed for reviewing your internal control system.

Please call us if you are interested in discussing this further.


Jack Craven and Victor Lee

Fraud Checklist

Fraud is a potential threat to every company. Here are 10 simple ideas for reducing the risk of employee fraud.

1. Develop a code of conduct that explicitly prohibits employees from committing fraud, having conflicts of interest or engaging in any other form of illegal or unethical behavior. Ensure that all your employees, vendors and customers get copies of it. Have key employees provide annual confirmation of their compliance.

2. Have a clear company policy on time and expense reporting.

3. Verify the credentials of all new vendors before they are authorized to supply the company.

4. Make sure all disbursements are properly approved.

5. Use direct deposit for payroll.

6. Require two signatures on checks over a certain amount.

7. Review the bank statements before anyone else does. Consider having them sent to your home address. Review cancelled checks (or copies) and match payee names with endorsements. Review invoices for any payees you don’t recognize.

8. Make sure bank statements are reconciled each month and that your CPA reviews the bookkeeper’s work periodically.

9. Make sure everyone takes their full allotted vacation time and be suspicious about anyone who appears to live beyond their means.

10. If something seems odd, whether it is a disbursement to an unfamiliar vendor or an unexpected expense, check it out and don’t accept a casual explanation.

Good internal controls require judgment and careful planning. Please feel free to call us if you have any questions.