Identifying Fraud: Malfunction and Malfeasance

30 Jun 2015 7:11 PM | Anonymous member (Administrator)

Today’s business landscape is heavily mined with systems, signals and detection devices, yet financial crimes continue to be perpetuated on companies.  Boston Women in Finance tackled the subject of fraud recently, led by moderator Donna Walsh, Highland Financial Group, with speakers Meredith Leary, Partner, Mintz Levin; Sheila Magoon, Special Agent of the Federal Bureau of Investigation; and Kelly Webber, Supervisor of FBI Boston’s Forensic Accountant Squad. 

The Person You Least Expect  Typically fraud within a company is led by an individual who has oversight of critical components of the system. The person knows how to game the system, including how to avoid detection.  Thus it is often “the person you least expect,” since that person has somehow accrued responsibilities that rightfully should be distributed among others for appropriate checks and balances.

Checks and Balances   Segregation of duties is a basic tenet of fraud prevention.  This principle dictates, for example, that a single person cannot be responsible for the full  cycle of sending out invoices, collecting receipts and then adjusting accounts receivable.  Instead the duties should be divided among multiple people to ensure shared control.  Yet sometimes companies are short-staffed or decide it’s “more efficient” and one person winds up with full oversight of a material financial process.

Confronting Fraud  If a company determines that a fraud has occurred, it is very important to take proper steps both internally and externally. Since it is likely the first time the company has had to manage through the process, there should be immediate consideration to bringing in experienced financial and legal resources. 

Preventive Measures  Do not rely solely on regularly scheduled audits or in-place systems to uncover fraud.  The person committing the deception knows how to work around these detection devices.  As such, companies need to take a holistic view including a top-down review of financial processes as well as a focused assessment of the individual components.

Pay Attention A poorly designed system and/or an overly entrusted employee can result in a small infraction becoming a larger problem. The best defense is a good offense – including background hiring checks, ongoing internal controls and attention to early warning signals.

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