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Top 16 Tips for Avoiding Fraud


The most common method of fraud detection (almost 1/2 of all cases) is a tip or complaint from an employee, vendor, customer or anonymous informant. About 1/5 of all cases are detected by accident, another 1/5 by internal audit, and about 1/8 by external audit.

The relatively low detection rate of fraud by audits does not accurately reflect the effectiveness of audits as deterrents to fraud. Although audits detect about a third of all frauds, audits deter an unknown number of potential frauds by putting personnel on notice that a theft is likely to be detected. The following list has been compiled from a variety of sources.

Internal Controls

1. Separate the duties of receiving funds, disbursing funds, writing checks, signing checks, and reconciling bank accounts. Having one employee responsible for all cash-related functions makes small businesses vulnerable to fraud.

2. Have the monthly bank statement delivered unopened to the owner, who should review it for unusual transactions such as declining deposits and unfamiliar payees.

3. Owners should look for signatures or endorsements that look forged, missing checks, check numbers that are out of order, and checks where the payee listed does not match the name in the check register.

4. Consider an independent review of the cash accounts and bank statements by an anti-fraud specialist.


Employment Conditions

5. Institute background checks on new employees, and notify job applicants that their backgrounds will be checked.

6. Employees who receive regular and recurring training about the detrimental aspects of fraud are more likely to aid in controlling it.

7. Employees who feel well-treated and adequately compensated are less likely to commit occupational fraud than those who don’t.

8. Employees who hold grudges against their employers—whether or not justified—are more likely turn to occupational fraud and abuse.


Workplace Conditions

9. Insist that employees take a vacation for at least one week every year and use that time to have the books reviewed for discrepancies.

10. Adopt a tip hotline or complaint-reporting mechanism that will enable employees, vendors, customers, or outside sources to report suspected fraud anonymously or without fear of reprisal.

11. Employers can gain valuable information by simply asking questions in a non-threatening, non-accusatory manner.

12. Conduct internal and external audits, especially a “fraud audit” instead of a “general audit” if you suspect fraud.


Automation

13. Have an accounting software program expert, preferably a CPA, do the initial set-up of the program to make sure that helpful features are turned on and unhelpful features are turned off.

14. Access to personnel and vendor master file records should be password protected and restricted by job function.

15. Computer systems should create an audit trail of all changes made to the vendor master file records, including an identification of those who made the changes.

16. Changes to vendor master file records should require supporting documentation, supervisory approval, and independent review.


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FREE REPORT
Disengagement Checklist - Recognizing the Nine Warning Signs

Effective communication is a key factor in any CPA-client relationship, and when you work to stay informed and in control, you are safeguarding your firm. It is good practice to periodically evaluate your relationship with current clients. Disengaging is simply good practice management, and knowing how to do it skillfully and professionally will serve to help you grow your practice and avoid liability.

This disengagement checklist provides a variety of thought-provoking scenarios that may indicate that trouble is brewing, and that it is time to disengage.  Also included is risk management advice on how best to proceed in a disengagement situation.

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ABOUT CAMICO

CAMICO Mutual Insurance Company was founded by CPAs in the 1980s, introducing a new way of approaching accountants’ professional liability insurance that focuses on helping firms reduce their risk exposure. In addition to comprehensive policy coverage, policyholders have access to a wide range of practice and risk management knowledge and tools, created by CPAs for CPAs.

Twenty four years later, CAMICO continues to be the leader in innovation in practice and risk management issues facing CPAs and in providing CPAs nationwide with new insurance options. Through its wholly owned subsidiary CAMICO Insurance Services (CIS), CAMICO offers an ‘A’ rated CPA insurance program that is administered by CIS.

FREE REPORT

Disengagement Checklist - Recognizing the 9 Warning Signs

This disengagement checklist provides a variety of thought-provoking scenarios that may indicate that trouble is brewing, and that it is time to disengage. Also included is risk management advice on how best to proceed in a disengagement situation.

Click here to get your copy of the free report

 

 


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