I find it very interesting who fraudsters turn out to be. I’ve read that Bernie Madoff, at least in more recent years, never solicited new clients. In fact, he would say he didn’t have room for any additional clients when approached. Then eventually he would say something like ‘but maybe just this one time – just for you’. How convincing is that? Wouldn’t you think this type of fraudster would seek as many ‘investors’ as possible? He was keenly aware that if he found the wealthy ‘investor’ he needed less of them.
While watching a movie with my family where a group of thugs was planning a heist, my six year old son was astounded that one of those thugs was a woman. He asked how could a bad guy be a girl? I guess that could be another story, but in his innocent mind, women could not be bad.
That’s what is so interesting about fraud and who commits it because it could be virtually anyone. We all have an image of what a fraudster might look like or what they may or may not say, but it rarely is reality. The person in the position of trust is thought to be the most unlikely person to commit fraud – that’s why they are in that position. We all know even a background check isn’t enough anymore. Most fraud crimes are not even reported let alone convicted so there are few criminal histories on those who have committed fraud in the past. Do you think a previous employer who knows fraud was committed by this potential employee would actually mention this when calling for a reference? Not on your life – can you spell lawsuit?
As a certified fraud examiner, I’ve been taught that fraudsters have no certain look and I am well aware that fraud is committed by the least likely suspect, but I was still unnerved when a small nonprofit client discovered they had been bilked by their accountant. What a nice guy. I would have hired him in a minute. He is a very kind, religious family man. He was in a position of trust with access to cash and no one watching over him on a daily basis. The board of directors could not believe it. I still find it difficult to believe. He walked the walk and talked the talk.
So what does an employer need to do to make sure fraud isn’t committed against their company? It’s not during the hiring process - it’s after they are hired and start working. Of course all of the background checks should be made just in case something does turn up during the hiring process. But after the employee is hired, management should be very aware of what this new employee is doing and how he or she is doing it.
All companies should have policies and procedures in place to protect their cash. New hires should know they are being watched. The policies and procedures should point out that all transactions are checked for validity and actual steps should be in place where the employee knows it is actually happening. The greater likelihood of being caught is the biggest deterrent.
Any access to cash should always take more than just one person in the process. This means that deposits should not be prepared, recorded and taken to the bank by just one person; and checks should not be prepared, signed and approved by just one person. In small companies, there are only a few employees, but it is imperative that someone else is involved – perhaps the business owner or a board member of a nonprofit – they have the most to lose if fraud occurs. Merely looking at the transactions is not enough. The second party should be sure the invoices being paid are valid expenses of the company and that the deposits are for the full amount collected.
The business owner or manager should always obtain the bank statement unopened and look over it in detail. Items to look for would be unauthorized transactions, unknown vendors, altered checks, altered deposits, and automatic transfers out of bank accounts with unknown origin.
In today’s world of paperless transactions, automatic disbursements out of your bank account could be easily set up. Anyone with access to your bank account and routing number could possibly set up a paperless withdrawal. These transactions would be discovered by looking at the bank statement. These transactions are less likely to be discovered by looking at the financial statements once the bookkeeper buried the number in an expense account that happened to be lower this period than last.
Keep in mind the fraud triangle. Fraud is committed when there is a perceived need, access to cash or the ability to commit fraud, and the ability for rationalization. When the potential fraudster has this perceived need, and access to company funds, he can always find a way to rationalize that its okay. Of these three sides, employers can only control the access to cash.
So the next time you are in the interview room don’t just think about how this potential new employee looks honest or is saying all the right things – think about what you are going to do to protect your assets from him and the rest of your employees. |