1) EXPERTS' FORUM Accounting Fraud Prevention Tips for Businesses What is your company's annual revenue? Multiply that by seven percent. Why? According to the Association of Certified Fraud Examiners, businesses lose seven percent of annual revenue due to fraud. Prevention measures are often overlooked by growing businesses but should be incorporated into a business operational procedures in the early stages of the business. Businesses should also ensure their assets are physically secured including having locks on desk drawers, keeping overnight cash deposits in a locked safe, and installing security cameras. Proper authorization to approve transactions and documentation also provide fraud prevention opportunities. Limiting authorization and documenting transactions reduces the opportunity for workplace fraud. There are five key preventative measures that every 2. Background Checks. Conducting background business should consider to reduce their fraud risk. checks for employment purposes can help prevent hiring individuals that could become a liability for 1. Effective Internal Controls. One of the the business. Background checks are one of the strongest deterrents to committing fraudulent acts is most cost effective ways to save a business from the fear of getting caught. Effective internal controls fraud. increase employee's perception of detection and reduce their opportunity to commit fraud. 3. Fraud Awareness Education and Training. A business employee handbook should The key components to internal controls are as have a Fraud Awareness section specifically follows: outlining what constitutes fraud in the workplace and the consequences of committing fraud. Fraud Segregation of incompatible duties awareness should be promoted through training Independent checks sessions or meetings at least annually. Physical security of assets Proper authorization Proper 4. Fraud Hotline. According to the Association documentation of Certified Fraud Examiners, 46 percent of workplace fraud in 2007 was uncovered due to tips Certain duties are inherently incompatible and from an employee, vendor, or customer. Providing provide opportunities for fraud. These duties employees an anonymous, worry-free way to consist of authorization (approval), recording report suspicious activity can greatly reduce fraud (posting in accounting systems) and custody of risk. assets (cash, signed checks). It is imperative that businesses segregate these duties as much as possible. Often times, a company does not have enough personnel to segregate these duties. In these situations, it is important to put in place adequate, independent checks (i.e. having someone not involved with a process review the process). Something as simple as a business owner reviewing copies of cancelled checks can be an effective fraud deterrent. These safeguards serve as an effective transaction verification tool. 5. Insurance Businesses should obtain coverage for dishonest employees through their insurance provider. This type of coverage assists with protecting a business from losses and fees incurred due to fraud by employees. Insurance proceeds can help a business recover fraud losses. A focus on growing your business should include developing proper checks and balances along the way. By considering various fraud prevention measures and implementing internal controls, businesses can reduce their risk of fraud and save a portion of their revenue. Resource: Association of Certified Fraud Examiners JASON OLSON Manager, Forensic Accounting Division Eide Bailly LLP jwolson@eidebailly.com http://www.eidebailly.com