internal fraud

What Happens After a Fraud Investigation?

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After an internal fraud is discovered and fully investigated, a company and its employees must move forward. That might seem like a simple thing to do, but it is not always quite that easy. The financial blow of an internal fraud can be devastating. Employees have long-term memories that may not allow them to forget about the violation of their trust by someone who worked side-by-side with them or by someone who was responsible for their future.

The most obvious potential long-term effect from an employee theft is financial devastation. Companies lose something on the order of 4% to 5% of revenue to internal fraud each year. Imagine how many companies could be put out of business with a fraud of that size.

The first step to moving beyond an internal fraud, especially a significant fraud, is repairing the financial damage. Often, cash reserves have been depleted and debts have mounted while the dishonest employee was filling her or his pockets. A plan to repair the company’s finances should be established quickly. Continue reading

Signs of Fraud

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There are many signs of fraud occurring within companies or with individuals. What are some of the signs we may see that indicate fraud is occurring? During a fraud investigation I am looking for signs that things are wrong. What clues may exist that things are not as they seem? Are there deceptions or misdirections that seem unusual that an honest person wouldn’t engage in? Are things set up in a way such that the environment is ripe for fraud to occur?

Apparent Control Weaknesses

When readily apparent major deficiencies in a company’s control procedures are identified, they should be considered warning signs that fraud could be occurring. All companies have some things that are not as secure as they should be. However, when the controls over a company’s assets and data are severely deficient, that is cause for alarm.

Some of the most common characteristics that might be considered severe deficiencies include: Continue reading

Searching for Fraud in a Company

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How do you begin searching for fraud in a company?

Sometimes I get called in when a company finds an employee stealing. They have found one instance of theft and they want to have the rest of the company looked at, but they don’t know where to begin. What should we look at? If a specific instance of fraud has been identified, that will dictate which financial statement accounts are examined by the fraud investigation team in detail.

But what if no conclusive evidence of fraud exists, and the investigator is instead looking for clues that might point to a fraud? The company has become suspicious, yet has little hard proof that anything unusual has occurred.

In that case, the investigator must dig through at-risk accounts and functions to look for suspicious activity. Analytical review of the financial statements will provide clues about the potential for fraud. (Come back tomorrow to see a video about this very thing!) Ratios may look unusual. Account balances may be out of line with recent history. Key documentation may be missing. These types of red flags will point the investigator toward areas that deserve additional investigation. Continue reading

The Fight Against Fraud: Arm Yourself With Prevention

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Fraud is big business. Companies are at the greatest risk of fraud from their employees, since the employees have easy access to information and assets. Some experts estimate that companies lose 5% of their revenues to internal fraud. At a company with annual sales of $100 million, that means that $5 million is walking out the door each year.

Executives tell themselves that their company isn’t the norm. They do better than average. They certainly haven’t been a victim of internal fraud to the tune of 5% of revenues. The sad truth is that they don’t know exactly how much has been stolen from their companies because they aren’t aware of all the fraudulent activities committed. Five percent is an average level of fraud for a company, and it would be wise for executives to take this number seriously. Continue reading

The Fraud Blame Game: Accusing the Auditors

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magnifyprintWhen a company discovers an internal fraud, it’s not uncommon for owners and management to look for a party to blame. After all, someone should have known that a fraud was in-progress, right? Often, the blame is cast in the direction of the auditors.

The auditors are an easy target. Not only do they usually have professional liability insurance policies to fall back on, the auditors initially seem like the logical culprit.

Management often believes that the auditors worked very closely with the financial information; therefore, they should have discovered the fraud. Continue reading

Article at CFO.com: When Your Compliance Program Fails

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cfo.comThe steps to take when an employee comes forward with a fraud tip, whether the allegations are false or not.

By Tracy Coenen, Contributor to CFO.com

You think your company has a robust compliance program to prevent financial-statement fraud, asset misappropriation, Foreign Corrupt Practices Act violations, and other financial frauds. There are checks and balances in place, with lawyers, internal auditors, executives, and the board of directors keeping an eye on things.

Still, the unthinkable happens. Reports of a major internal fraud surface, and the scheme may involve several members of middle or upper management. The information – received through an employee’s whisper, an internal hotline, or the rumor mill – has enough substance to be deemed credible, yet not enough to know exactly who is involved, how wide-reaching the fraud may be, the amount of money stolen, or the exposure to government action and penalties. Continue reading

From i-Sight Investigation Software: Stop Fraud at the Door Before it Enters your Organization

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Earlier this week,i-Sight Investigation Software posted an article based on an interview with me, Stop Fraud at the Door Before it Enters your Organization.

Making a bad hiring decision is sometimes only a minor inconvenience and a waste of time, but in many cases, it can leave you vulnerable to workplace fraud. One bad apple can wreak havoc in your organization and open you up to theft, legal trouble and even bankruptcy. In today’s litigious environment, it’s more important than ever to stop fraud at the door by conducting background checks on potential employees before making a job offer.

We interviewed Tracy Coenen, forensic accountant and fraud investigator, on the strategies for hiring people with high ethical standards as part of a company’s fraud prevention program. Continue reading

Genuine Remorse From Sachdeva? Laughable.

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Yesterday, Sue Sachdeva was sentenced to 11 years in prison for her $34 million theft from her employer, Koss Corp.  I predicted a little slap on the wrist of 5 to 7 years, so she got two little slaps instead.

The Washington Post is reporting that Judge Lynn Adelman gave her less than the 15 to 20 years requested by the prosecutor because of her “acceptance of responsibility and the genuineness of her remorse.” Continue reading