Prevention is the least expensive way to fight fraud but, if you are curious about whether it’s happening in your company, there are steps you can take to aid detection of employee fraud.
Since fraud is most frequently identified through tips, a hotline is an essential tool in catching employee fraud. Hotlines are so effective in deterring and detecting fraud that the Sarbanes-Oxley regulations require companies to have one and nonprofit tax returns ask about its availability. These services are relatively inexpensive compared to the potential losses due to fraud.
Additionally, certain tests can be performed with accounting data to identify irregularities that may unveil fraudulent acts. For example, an analysis using Benford’s Law tests the expected distribution of the number of times each digit occurs as the leading digit in a large set of numerical data, such as check disbursement amounts. Other digital analyses can be performed on the general ledger, such as gap detection, duplicates, rounded amounts, and entries on weekends and holidays.
The Report to the Nations on Occupational Fraud and Abuse cites the most common fraud in the construction industry as corruption. This includes bribery, kickbacks, bid-rigging, extortion (of vendors), and illegal gratuities. One best practice to combat corruption is to have an audit clause in your vendor contracts and on your purchase orders.
In addition to beefing up controls to prevent fraud in your company, consider these and other detection tools if you feel an assessment is warranted.