Dennis Fortnum

 

Our experience shows there is an increased risk of fraudulent activities within private businesses where people hold multiple roles or differing responsibilities, with most internal embezzlement involving someone from within the accounting department. Warning signs of fraud related situations can therefore be that much more difficult to detect within private companies, especially where prevention procedures and policies might not be as rigorously established as within larger organizations. This can lead to a prolonged period of time before a fraudulent event within a company is discovered, on average up to 18 months.

The intent to commit fraud usually derives from an incentive or a personal need. Then, an opportunity to commit fraud needs to be present in order for the act to be undertaken. This can be exemplified sometimes when an employee holds the dual responsibility of bookkeeping and purchasing for example. Finally, fraudulent employees can rationalize and perpetuate their actions by the way they are treated in the workplace, whether those reasons are founded or not.

There are best-practices to prevent fraud that business owners might wish to consider in order to protect themselves and their businesses such as completing detailed background checks of employees, having a code of conduct including articulating clear policies regarding employee theft and repercussions, providing training programs to detect warning signs of fraud, and/or creating a reward system for reporting suspicious activities. Operationally, organizations could also implement the following:

  • Analyze and review all expenditures
  • Document all expense reports
  • Review all bank statements
  • Watch company credit cards
  • Ensure cash balances are reported accurately
  • Conduct frequent physical inventories
  • Separate bookkeeping functions
  • Audit at various times during the year

In the face of fraud, as with any workplace issue, business owners are advised to be proactive rather than reactive. Pre-establishing prevention procedures and devote time and resources to developing anti-theft policies in the workplace will ultimately help avoid the costly and time consuming process of investigating frauds and irregularities

 

Dennis Fortnum
Canadian Managing Partner,
KPMG Enterprise

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