Employee fraud is much more common than you think, especially within smaller organizations. Staff members could be stealing inventory, money from the cash register, or even changing amounts on company checks and forging signatures.
No matter your industry, it’s essential to have strong internal controls in place to prevent these attempts from happening under your roof.
A true story that could happen to you too
We recently heard a story about an accounting employee doubling their salary for quite some time without anyone noticing. They were stealing thousands of dollars from the company as each pay period rolled around. This happened because the staff member was in charge of submitting payroll, and they were also in charge of approving payroll — a huge no-no. They simply went into the system, changed their pay rate, and began helping themselves.
Things like this can smoothly go unnoticed if your payroll is a significant amount. Adding a few extra thousand to that amount each month, if not carefully scrutinized, could easily fly under the radar. This could be especially true if you have several hourly employees that work varying hours each week. When your payroll isn’t a set in stone number each period, the fluctuation in amounts could seem reasonable to you, rather than being a red flag.
This happened because the company did not have the proper internal controls in place. They were a small business with a one-person accounting department and perhaps did not have the staff capacity to split up those roles.
How internal controls can prevent and detect employee fraud
There are many ways that fraud can be committed in your organization besides the story we just touched on. An employee could update a vendor’s address to their own address, then sign and send checks their own way. They could also create false purchase orders for ghost vendors.
Inadequate internal controls are often the reason staff members may get away with fraudulent behavior. It’s essential to have your internal control structure regularly assessed to make sure there aren’t any loopholes in your operations.
Do you have appropriate separation of duties in place? How is your management oversight?
When is the last time you assessed your internal control structure?
At MGA, our team of experts can help you design an effective and efficient internal control structure for your business.
We can look at your cash receipts and revenue processes, which every company has no matter their industry. If your company does payroll in-house, we can also take a look at that along with your financial reporting. How do you receive money, and what type of controls do you have around that process?
Regarding accounts payable and cash disbursement processes, we can assess what kind of AP controls your business has. Are the people that approve checks the same people that are updating vendor files/records?
Keep employee fraud from happening under your roof by putting healthy internal controls in place. We can help. Whether you are looking for an assessment of your current controls or need help designing a structure altogether, our experts are here to walk you through the process.