It is important to understand that one contributing factor to the problem of embezzlement and/or fraud is the environmental component. It is vital to guard against an environment that might be conducive to these crimes.
Some aspects that you should be wary of are:
- Overbearing management with no checks and balances.
- Climate of fear.
- High staff turnover rates in key controlling functions.
- Long-service staff in stores/purchasing departments.
- Major understaffing in key control areas.
- Frequent changes of outside professionals such as attorneys and accountants.
- Failure of proper analysis of data.
- Lack of common-sense controls such as changing passwords frequently, requiring two signatures on checks or restricting access to sensitive areas.
- Inadequate segregation of duties.
- Past rumors of fraud not dealt with effectively or at all.
- Inadequate internal reporting or management accounting.
- Poor staff morale / lack of career progression / weak management.
- Excessive pressure to meet budgets, targets or forecast earnings.
- Personnel not required to take time off and cross train others to do their jobs while gone.
- An employee’s personal situation changes (spouse’s loss of job, sick family member, etc).
If you are aware of any of these issues it is imperative that you begin immediate steps to resolve them. No business is too big or too small to be impacted by fraud and embezzlement. I see it happen way too frequently and most of the time, it is by a long term employee, friend or family member. Protecting yourself from embezzlement and fraud is something you should take seriously for the long term success of your business.