Workplace Crime and Dishonesty

Criminal acts are often envisioned as being perpetrated by external operators that have no connection to an organization besides their desire to victimize it. But malicious acts can also be conducted by employees or volunteers. While few actually resort to criminal activity, taking appropriate countermeasures against internal dishonesty is just as important as measures taken against external threats. Consider the following internal controls to determine which are most suitable to either develop or augment your crime prevention program:

Confidential Reporting

Ensure your employees have access to a confidential reporting service. Employees that have a way to provide information anonymously, in good faith, and without fear of recrimination are far more likely to come forward if they have suspicions.

Encourage Open-Door Policies

Many internal crimes are committed by employees that are dissatisfied or believe they have been wronged. A culture where employees can speak freely can help leadership detect and alleviate pressures their employees are facing before they become acute enough to prompt criminal activity.

Employee Support and Assistance Programs

Providing employees access to resources for common lifestyle challenges such as addiction, personal finances, relationships, or mental health, can also help deter internal crime. Employees that feel valued and supported are less likely to engage in criminal activities against their organization. This practice has the added benefit of contributing to a positive work environment by helping employees become healthier, happier, and more productive.

Identify Countermeasures

An employee or volunteer is far less likely to commit criminal acts if they know that there are robust systems in place to detect them. Inform all staff that protocols are in place.

Clarify Consequences

Educate staff about the consequences of fraud and crime during new-hire orientation or ongoing learning programs. Education efforts should be positive, non-accusatory, and emphasize the fact that illegal conduct in any form eventually hurts everyone in the organization in the long run through lost profits, adverse publicity, and decreased morale and productivity.

Conduct Inventories

Reconcile sales to inventory on a regular basis (quarterly or at least annually), and conduct surprise inventories from time to time. Have procedures in place to follow-up on any discrepancies that fall outside of acceptable parameters.

Conduct Surprise Audits

Developing audits that focus on high-risk areas is often effective in both detecting and deterring fraud. Some suggested areas for audits include expense reports, payroll, purchasing, sales, accounts receivable, cash, and suspense accounts.

Financial Checks and Balances

Appropriate checks and balances in your organization’s financial procedures is a must. Consider implementing the following:

• Anyone who processes checks should not also manage accounts receivable records.
• Limit check signatories to a manager and one or two highly trusted staff members.
• Keep blank checks under lock and key.
• Send monthly bank statements directly to a trusted manager to review for any errors or improperly executed checks.
• Assign ordering and payment responsibilities to different employees.
• Allow only one or two trusted employees to disburse petty cash, and require a receipt and signed voucher for all disbursements.
• Require all credit or gas cards be signed out, and all expenses be authorized by a purchase order.
• Require strict documentation for all reimbursable expenses and subject every expense account voucher to a pre-audit review procedure before payment.
• Require two or more people to participate in cash handling. Store cash in sealed, tamperproof bags until it can be deposited, and if necessary, utilize a locked drop safe for deposits.

Mandatory Vacation and Job Rotation

Many internal frauds are discovered when the perpetrator is away on vacation or out due to sickness or on another unexpected absence. Enforcing mandatory vacations for certain positions, especially those that deal with finance and accounting, can aid in the prevention of some frauds.

Suspicious Behavior

Thieves commonly use the proceeds of their crimes for ostentatious lifestyle improvements. Educate staff to be aware of these signs and have a process in place for what they are expected to do if they have suspicions.

The proper application of controls can drastically reduce the risk of internal fraud by eliminating the temptation, incentive, and opportunity for employees to commit crimes. While every organization is unique, the need for appropriate fraud prevention is universal. Please contact your broker or your risk manager for additional information on this topic.