Data manipulation may involve anything from executing transactions outside the accounting/data collection system to altering the data that is in the system. For example, recording fewer sales than were actually made and pocketing the difference. For a cashier, you need to ensure all sales are rung up. Install CCTV cameras can help with internal control and also help protect employees. Believe it or not, but there have been reports that some brazen employees brought in their own cash registers and used those to ring up some sales!
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Since this never enters the accounting/data collection system it may be difficult to detect. Of course, there may be signs like a large inventory shrink, declining sales, etc. Consider bonding employees that handle cash to help protect your company and also carry crime insurance.
Are all journal entries in your company books reviewed and approved by a person other than the initiator? Does the approving authority review for appropriate journal entry backup and document their review by initialing all entries to establish an audit trail? Keep an eye out for accounting entries that have no documentation or that are in round dollars. Clear warning signs that, at best, you have a sloppy accounting system and, at worst- you have fraud.
What are your procedures for employee pay increases?
Can one person change rates and run the payroll? Sometimes simple payroll control totals may help prevent this activity. Fraudulent workers compensation claims cost employers millions of dollars annually in false or exaggerated claims. How do you manage claims? People injured on the job should be taken care of but those who claim on the job injuries when they weren’t, or who exaggerate their claims, should not be able to scam you. Common workers compensation scams include exaggerating the severity of a workplace injury, staging an injury,
claiming a personal injury was incurred at work, and failure to disclose a pre-existing condition. Manage these claims! Disability and workers compensation claims have exploded all over the world during this economic downturn. Common sense tells us that the large increases we’re currently seeing cannot possibly be all legitimate.
Establish an injury reporting system that requires quick and accurate reporting of all job-related injuries and accidents. Consider returning injured employees to “light duty.” Many times it will not only help prevent malingerers, but also be welcomed by the vast majority of honest employees.
Fraudulent Expense Reports
Number one, have an expense report policy that details and documents exactly what expenses are reimbursable. Have a zero tolerance policy for any employee cheating on their expense report. If they cheat, they should be immediately terminated and prosecuted. All expense reports should be approved by the submitter’s manager before payment. Approval indicates adherence to policy and business purpose. Expense reports should be required promptly, at least once a month. All items should have documentation and a clear business purpose. This is important for internal control as well as for income tax purposes.
Be careful with expense reports if you have company credit cards. If no one is watching it’s very easy to claim airline tickets, hotels, etc. on an expense report when in fact they were paid by a company credit card or directly billed to your company. A rudimentary but effective fraud if no one is watching. Fraudulent expense reports are a prime way employees “get even” if they feel the company has wronged them. I once worked for a company where a top salesman falsified his expense report by claiming business mileage he did not incur. This particular fraud was accidentally discovered when the salesman’s boss was asked by a top customer how his salesman was doing as he had not seen him in some time. The sales boss recalled the salesman had just claimed mileage to visit this customer! When the salesman was confronted, he admitted he lied and was promptly dismissed. Apparently the salesman thought he was “entitled” to this since he was recently passed over for promotion.
Have an expense report policy, ensure there is a valid business purpose for all expenses submitted for reimbursement, and insist on original receipts. Compare spending to budget and prior year and follow up on discrepancies and variances. The former President of a big financial services firm in Mumbai is currently being sued by the university claiming she stole millions of dollars through fraudulent expense reports. It’s alleged that for 10 years the President routinely claimed meals and other expenses that were never incurred. The university claims that more than 70% of the claims on her expense report were fraudulent. Again, this fraud could have been easily prevented with some basic internal control. Everyone’s expense report should be reviewed and approved before payment.
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Amit Sen, a commercial pilot by training, has over 15 years experience in the space of corporate investigations, handling Copyright & Trademark infringement cases, Pre – employment verification Industrial Espionage investigations, Asset & Net – Worth assessment assignments and vendor / supplier verification cases, among others. Co-founder of Alliance One Detectives – which is the best anti fraud consulting firm in Mumbai. Amit has also successfully completed assignments in a wide range of sectors, including the machine tools industry, pharmaceutical industry, hospitality sector, specialized equipment (Oil & natural gas sector, aviation industry etc.), telecom industry & the IT & ITes sectors. These cases have all involved both offline and online investigations.