Companies work to combat fraud

By Don Sadler

For the AJC

Desperate times, they say, often call for desperate measures. Unfortunately for many employers, fraud and embezzlement are the measures some employees resort to during tough economic times like these.

In a recent report, “Occupational Fraud: A Study of the Impact of an Economic Recession,” the Association of Certified Fraud Examiners concluded that financial pressures during the economic crisis have led to an increase in fraud. More than half (55.4 percent) of the certified fraud examiners surveyed said they believe the level of fraud has slightly or significantly increased in the previous 12 months.

“The message to corporate America is simple: Desperate people do desperate things,” ACFE President James D. Ratley said. “In a good economy, most people would never think of committing fraud against their employer. But organizations must be especially vigilant now by ensuring that proper fraud prevention procedures are in place.”

John Barrickman, the president of New Horizons Financial Group, a consulting firm based in Atlanta, said fraud is best illustrated by a concept known as the fraud triangle.

“For internal fraud or embezzlement to occur, there must be three elements in place: pressure, rationalization and opportunity,” he said.

Interestingly, about half (49.1 percent) of the respondents to the ACFE survey attributed the recent rise in fraud to increased financial pressure, while only 27 percent attributed it to greater opportunity and 23 percent to more rationalization.

“With enough financial pressure, people can sometimes rationalize fraud to themselves, and many employees today are facing financial pressures unlike anything they’ve ever faced in their lives,” Barrickman said.

While there’s little business owners can do about employees’ financial pressures or their rationalization of theft, there are concrete steps that can help limit opportunities for fraud. It all starts with setting the proper tone at the top, said C. Patrick Braley, senior manager in the Dispute Resolution & Forensics Practice of Bennett Thrasher PC in Atlanta.

“Upper management should proactively communicate its intolerance for employee misconduct,” Braley said. “A president who frequently emphasizes the importance of ‘doing the right thing,’ coupled with a track record of the company imposing swift disciplinary action against fraudsters, will cause employees to think twice before acting on an opportunity to steal.”

For Barrickman, it all boils down to making sure companies have sound internal controls in place. By this, he’s referring primarily to adequate oversight of the financials by management and proper segregation of duties among financial employees (accountants, bookkeepers, etc.).

Segregation of duties means that at least two employees should perform financial and accounting tasks.

“This will limit the opportunities a single accountant or bookkeeper might have to embezzle funds and cover up the tracks,” Barrickman said.

For example, different employees should fill out deposit slips, enter cash receipts in the financial records and reconcile the bank statement each month. For smaller businesses where this may not be practical, the owner should personally oversee these functions.

Braley also encourages businesses to set up a fraud hotline that employees can use to report suspicious activities anonymously.

“The existence and promotion of this kind of fraud reporting mechanism provides multiple benefits to an organization,” Braley said.

“For one thing, it’s a symbol of the company’s lack of tolerance for misconduct. It also increases the chance that fraudulent activity will be reported because the anonymity of the hotline typically gives an informant a higher sense of security from retaliation.”