I heard it again just last week. Another internal fraud situation by an office manager, still under investigation with $300K missing and climbing! It seems that lately we hear it more and more. The mega companies usually have the resources for a rapid recovery, not so the rest of us.

As business stewards we have a responsibility to all our constituents to guard the assets of the company. Having been in business for over 19 years it continues to break my heart when hearing of another costly defalcation in an organization often resulting in an inability to ever fully recover.

Trust is at the heart of good leadership and the trust goes both ways from the top company leader to the staff below as well as their trust in him/her. Trust from the lower echelons includes confidence that the company is stable and safe from loss due to careless oversight. For the top leader to engage in reasonable watch/care is not a violation of trust but rather necessary prudence for a business built to last.

forensics in small businessesI spoke about “High Level Protection” in a previous blog post that covers the first critical forensic component, that being a credible and safe company culture with staff enthusiasm. Now let’s look at a lower level of protection that being internal controls. A company built on a platform of purpose and principles requires only reasonable watch. Implementing rigid work compliance can create an emotionally unsafe environment for the staff and ultimately bad morale. Protecting the assets of the company rests at the top! Therefore this is not an area of responsibility that can be abdicated.

Here are a few steps that can minimize malfeasance on your watch:

  • Stay connected to the financials.

    Go beyond reviewing reports printed out by your office staff. Embed yourself on the Quick Books platform and pull up your own financial reports anytime from anywhere. Quick Books offers valuable audit trails at the click of the mouse for good analysis of the numbers needing scrutiny. Hint: encouraging the staff to record transactions as close to real time as possible enhances your financial reporting from “historical only” to a tool for strategic maneuver.

  • Control the cash.

    Cash deposits must be separate from those doing disbursements; keep this function at the highest level possible in the company. For cash businesses implement sound reconciliation procedures that link to POS reporting. One of my roles as CEO of Edoc is making all the company deposits. Bank scanners and electronic transfers make this duty quite effortless. This function alone can eliminate a great percentage of internal risk.

  • Eliminate checks.

    Implement direct deposit for all employees. Pay bills online and with credit cards when possible. Several years ago we experienced a bank fraud when a rogue check cashing service duplicated our checks and sent prostitutes into branches in another city cashing them. Fortunately for us the bank had to take the hit yet their failure to properly investigate and a reoccurrence resulted in a relationship breakup between our organizations.

  • Know your employees.

    If you have a large number of employees have all of them come to your office occasionally for you to thank them for their hard work and at the same time check them off the payroll register generated (unannounced) after the payroll process was submitted. Are there employees on the list that somehow could not find their way to your office? Stop future checks until they do and by all means investigate!

  • Know your vendors.

    Look at the list of vendor payments. Are there companies you do not recognize? If so, investigate.

The sad fact is that it simply is not possible to implement absolute controls that will prevent internal fraud by a staff member determined to do so. Reasonable controls however can eliminate most opportunities and catch the crook well before serious is done.

Look for a future post on Fraud Detection. Till then, maintain a trusting atmosphere but keep watch.

Jim MullaneyJim Mullaney

READ MORE: If you like this article, you should read, “Surprises We Can Do Without

Jim Mullaney is President and CEO of Edoc Service, Inc. a “Fast 55” virtual company based in Cincinnati, Ohio.