A Pro-active Approach to Occupational Fraud, Abuse and Employee Theft

Time and time again reports show that when it comes to fraud, the greatest threat is not from outsiders but from insiders. Organizations can be proactive in preventing, detecting, investigating and resolving employee theft and fraud. 

Senior management and business owners set the example for the organization’s employees. A non-consistent attitude toward rules and regulations by management will more than once be reflected in the attitude of employees. Every employee, regardless of their position, should be held accountable for their actions, so yes that includes top management.

And in all honesty, more than once we have found our initial client contact to be the involved party. It is often management that has the greatest access to fraudulent opportunities and it is more than once that same management that can get away with control overrides.

Create a positive work environment that encourages employees to follow established policies and procedures and act in the best interests of the organization.

Fair employment practices, written position descriptions, clear organizational structures, comprehensive policies and procedures, open lines of communication between management and employees, and positive employee recognition will all work to reduce the likelihood internal fraud and theft.

I see the importance in my daily practice. Once fraud and/or theft is established and a  perpetrator has been identified, more than once the issue of feeling not-recognized is at least part of the motive for stepping across the line.

INTERNAL CONTROLS– Internal controls are designed to ensure the effectiveness and efficiencies of operations, compliance with laws and regulations, safeguarding of assets, and accurate financial reporting (See for instance the COSO model).

The internal controls controls for safeguarding assets and financial reporting require policies and procedures that address amongst others:

  • Separation of Duties
    No employee should be responsible for both the recording and processing a transaction. I am aware that In New Zealand with a substantial percentage of very small businesses this is sometimes hard. However there are always options and more than once overriding this basic procedure for the sake of practicability has been disastrous.
  • Access Controls
    Access to physical and financial assets and information and accounting systems should be restricted to authorized employees and its use should be monitored on a regular basis.Start off with simple checks: just ask your employees out of the blue, I need the password of so and so who’s not here today, can anyone help me? You’ll be surprised, or check for the yellow post its on the bottom of the screen or the back of the computer.
    And where it comes to physical access: more than once actually today I could have nicked all the confidential assets of my client: the person I was supposed to meet was tucked away in the back of the building, the rest of the crew was at a seminar, and me I walked around and saw computers standing open, no one to receive me at the door and access to all offices. Not good.
  • Authorization Controls
    Policies and procedures addressing the controls to initiate, authorize, record, and review financial transactions.
    Internal controls will reduce the opportunity for fraud as a detterent factor and will enhance the efficiency and effectivity of your operations.

If you hire dishonest employees you run a risk. Honest employees are an asset to any organization, even one with poor internal controls. However, a dishonest employee will ignore management’s attempts to provide a positive work environment and search for ways to defeat even the most comprehensive internal controls to commit fraud.

It is good to realize upfront that no internal control system is  100% fail safe.

Therefore it is very important to keep dishonest applicants from becoming an employee. A thorough pre-employment background check should include:

  • Criminal history for crimes involving violence, theft, fraud, etc
  • Civil history for lawsuits involving collections, restraining orders, fraud, etc
  • A financial background check (Baynet)
  • Driver license for numerous or serious violations especially where driving is part of the job
  • Education verification to verify degrees from accredited institutions. By now I receive approximately 20 emails a day offering me different  degrees and certifications for sale. You can no longer afford to be just impressed with what you see. A check is a  requirement.
  • Employment verification to verify positions, length of employment, reason for leaving

Employees should receive information on the policies and procedures related to fraud, the internal controls in place to prevent fraud, the organisation’s code of conduct and ethics policies, and how violations of these policies will be disciplined.

Every employee should sign a form to verify the receipt of this material. On a periodical basis it is recommended that employees receive training on these subject matters.

And before I forget: referring new employees to the companies intranet for further advice without providing them a full package is not a good option top keep them updated. They are an important asset, make education something personal.

If anything, more than once I encounter witnesses saying that they “had this feeling all along that something was not ok. But I didn’t know where to go to to express my concerns and I didn’t want that colleague to become a suspect for nothing”

Every organization should provide a confidential reporting system for employees, vendors, and customers to anonymously report any violations of policies and procedure and even concerns.

Employers should promote and encourage the use of the reporting system. Not just from a reactive point of view but also pro-actively. More than once vices are involved or  signs are visible at an early stage, bosses don’t see, colleagues do: make sure they can communicate those concerns.

Random, unannounced financial audits and fraud assessments are important to identify new vulnerabilities and measure the effectiveness of the controls in place.

In addition to gathering important business intelligence through audits and assessments; it will deliver a strong message to employees that a pro-active stance in respect of fraud is a priority

A thorough and prompt investigation of policy and procedure violations, allegations of fraud, or the warning signs of fraud will provide management with the facts necessary to make informed decisions and reduce losses.

And again it send a strong message to the internal organization that these things are taken seriously.

Employees who are identified as committing fraud and theft should receive appropriate punishment for their misdeeds. A failure to do so leaves an impression that the only risk for this conduct is termination. At all times it is recommended that recovery of damages including the costs of investigation, litigation or prosecution is sought.

This post was previously posted at the Dierckx & Associates Blog. I believe, based on current experiences that it is still current.


This is the first post in a new category: inspirational figures. In my opinion, reading the ideas of the great in history and of our times is a great way of self-improvement and inspiration. In this category I will discuss some of the ideas that I picked up of these great. I will not write long biographies, there are plenty of books and sites around to read these, this category is meant more as an extension of both, my journal and my thoughts that pop up after reading about these people or their works.

I had the immense pleasure to watch the movie Gandhi last week. I thoroughly enjoyed it and was again swept away with the beauty of the movie and more importantly the incredible life and achievements of this very important 20th century spiritual leader.

And whilst the movie swept me away I realized what an incredible man this Gandhi was and how we could use someone like that in our current days and times.

Some inspirational Quotes

“Non violence is the greatest force at the disposal of mankind. It is mightier than the mightiest weapon of destruction devised by ingenuity of man”

Is that not something we should all realize ourselves in these times of terror, war on terror, rising rates of violent crime. Gandhi realized and  lived this notion. He understood the power of turning your other cheek as promoted in the bible. Isn’t there not something very disarming in just refusing to use violence?

And here is one that could make so many people live more fulfilled lives if they understood this:

“Satisfaction lies in the effort, not in the attainment”

The idea should be familiar for those that have indulged themselves in the world of self help and life coaching: enjoy the process.

“It does not require money to be neat, clean and dignified.”

Often so misunderstood.

From the movie itself the following quote:

I am a Hindu, a Muslim and a Christian and a Jew and so are all of you. When you wave those flags and shout , you send fear into the hearts of your brothers…. Stop it, for God sake stop it”

There have been many that have discussed the idea of tolerance but seldom in such strong and simple words. With this one sentence all that needs to be said is said. Look around and see what is going on, how intolerance has made us fight each other and forget that ultimately we are all one and the same, children under God, whatever name we want to give that God.

So who are we actually fighting: ourselves.

There are simply no winners in war. If we could all embrace this notion of Gandhi, which in other words  can be found in the words of for instance the Dalai Lama, and embrace at the same time the idea of non-violence, would the world not be a different place?

“I want to change their minds, not kill them for weaknesses we all possess.”

His greatest weapon probably was living a life of peace and love and leading others in doing so.

“For this cause I am prepared to die. There is no cause for which I am prepared to kill”

Seeing the movie it is almost unimaginable to believe that such an incredible man could actually exist. A man that made us look at ourselves and ask difficult questions. Perhaps it is time we start reliving his ideas again. The world could certainly use such an approach.

“Love is the strongest force the world possesses and yet it is the humblest imaginable”

In the words of George C. Marshall:

“Gandhi has become the spokesman of a conscience of all mankind. He was a man that made humility and truth more powerful than empires.”

To close off and get you to think some additional inspirational quotes:

“Strength does not come from physical capacity. It comes from indomitable will”

“A nation that is capable of limitless sacrifice is capable of rising to limitless hights”

“Where there is love there is life”

“They may torture my body, break my bones, even kill me. Then they will have my dead body, not my obedience”

“Cowards can never be moral”

“I believe that non-cooperation with evil is a duty” ” Non-cooperation is a protest against an unwitting and unwilling participation in evil”

Previously posted at The Renaissance Man
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