An Ounce of Prevention

Today, financial executives must be alert to every kind of fraud-both from internal and external sources. Smart companies have found it useful to pursue several avenues in preventing fraud wherever possible, and where prevention has been impossible, companies have taken aggressive action to detect and counter fraud.

Fraud Prevention-Within the Company
The key to successful prevention of embezzlement or theft of company financial assets is continuous vigilance over sensitive areas.

1. Review all hiring procedures. One of the most important means of fighting internal fraud is to keep people with dubious backgrounds out of your organization in the first place. Know your employees!
2. Keep all check stock or cash equivalents in a secure and locked facility.
3. Make sure at least two people are accountable for the accounts payable areas, and ensure that mailroom personnel and procedures are sound.
4. Change keys or entry codes periodically to prevent routine access to storage areas.
5. Rotate personnel periodically from sensitive assignments into others.
6. Enforce mandatory vacation policies, particularly for those with financial access.
7. Conduct surprise audits.
8. Review your bank statements diligently, and ensure that the authorized signers are not the same people who reconcile the account.
9. Consider moving as much check disbursement activity as possible, whether payroll or accounts payable, to some electronic form of payment.
10. Read your bank contracts surrounding liability and understand your company's liability for fraud as covered under the Commercial Code.

Fraud Prevention-Outside the Company

1. Network with other businesses so you receive timely information on fraud occurrences in your local area. Thieves like to rob in a cost efficient manner and may run their scams on several businesses before they move on. Keep a record of when, what and how a fraud may have hurt your business so you can watch out for it the next time.
2. Implement bank services like positive pay, expedited return information and signature verification systems to protect your accounts payable and accounts receivable areas.
3. Purchase check stock from well-established vendors. Use safety paper. If you process your payables through a service bureau, ensure that you have a copy of its security procedures.
4. Reconcile your check disbursements and deposits faithfully and in a timely fashion.
5. Stay particularly wary if you are a nationally known firm. Firms that are well-known are the favorites of forgers.

Copyright © 1994 Bank Security & Fraud Prevention. Originally appeared in Bank Security & Fraud Prevention, Vol. 1, No. 2, 10/94