Fraud prevention Featured

8:00pm EDT September 25, 2008

Take a look at your company, and think about the hardworking employees who help your company succeed.

What would you do if you found out that one of them stole from your company, be it supplies or money?

This scenario is one that plays out at businesses across the country. Fraud can happen in thousands of different ways, and experts estimate that companies lose about 5 percent of revenue each year to fraud.

“The typical scenario we see is where the owner or management relies too much on trusting a couple of individuals rather than relying on business controls,” says Kevin R. Krencisz, senior manager at Barnes Wendling CPAs Inc. “My usual response is, ‘Hopefully, you trust who’s working for you, otherwise I would hope you wouldn’t keep them on the payroll.’ You have to go further than that. People can’t feel like they have the opportunity to commit fraud.”

You can help prevent fraud at your company by putting some key controls in place. Krencisz says that brainstorming with management and with key employees can help you identify the ways that fraud could happen at your company and then implement controls to prevent it.

Beyond that, Krencisz says that you should pay attention to gut feelings. If something doesn’t feel right, follow through with the right people, such as your accountant, to uncover whether something is wrong.

“You don’t want the people you suspect to know you suspect something, because they could start getting rid of documents or covering their tracks,” he says. “The worst thing is, whether it’s a couple months or years down the road, you say, ‘Something didn’t seem right, and I should have checked up on it.’ A lot of times, the hunch can go a long way.”

Knowing how fraud occurs can also help you detect and prevent it, and your accountant can educate you about fraud that has occurred at other companies and what to look for to keep it from happening to you.

Defining fraud and setting up a comprehensive code of ethics and conduct for employees to follow will make it clear to them that theft is unacceptable. Krencisz says that because fraud can be defined many different ways, you need to create a definition that both fits your company and that is easy for employees to understand.

Despite taking all these precautions, you may still find yourself a victim of fraud. Once discovered, you need to deal with it swiftly and explain to other employees what has happened so that they understand you are serious about it not happening again.

“If I knew a colleague who stole from the company or lied and they weren’t terminated, I might say, ‘Well, maybe I can do the same thing and get away with it,” Krencisz says. “I encourage people to be vigilant and have a no-tolerance policy, and when it’s caught, it needs to be dealt with.”

And by being upfront with employees about the situation, you are also giving them the opportunity to share information they may have about suspicious activity.

Krencisz says that employers might take fraud more seriously if they took a hard look at the numbers involved.

“I sort of imagine if there was a line on the income statement that said ‘fraud expense,’ and it totaled 5 percent of revenues, that would be eye-opening to someone to say, ‘Can’t we control that somehow?’” Krencisz says. “Ultimately, it could take a few changes within the internal structure to get that 5 percent back. Companies sit back and think of ways to cut costs ... and here some of that is right at their doorstep and can be done easily.” <<

How to prevent fraud

Fraud can happen in thousands of ways, says Kevin R. Krencisz, senior manager at Barnes Wendling CPAs Inc. Here, he offers tips on how to prevent it from happening at your company.


  • Have the bank statement sent to someone off-site. That person is then looking at the cancelled items and statement independent of the cash process.



  • Limit access to company credit cards. Krencisz says providing access to company credit cards can be like giving employees approval to make unauthorized transactions. Make sure those who do have access provide reconciliation within a week of a transaction.



  • Prepare a budget for actual expense items. Krencisz says you can see a lot through this, especially if there are fluctuations from one period to another. And be sure to get explanations for these fluctuations.



  • Examine journal entries and adjustments made to the accounting. Krencisz says that those in accounting who want to bury something can cover up a lot.



  • Give employees a forum to bring information to you. Krencisz says a lot of fraud cases are uncovered by employees, so you need to have a way for them to anonymously communicate these issues to you in a way where they know they are not going to be punished. Follow up on this information and make sure it’s not just a case of an employee making a false claim against an employee he or she does not like.


HOW TO REACH: Barnes Wendling CPAs Inc., (216) 566-9000 or