While no one likes to acknowledge that one of their employees might steal from them, it is a fact of life. An organization’s greatest vulnerability is not from the new employee, the one who is given little access, but rather from the long-term, trusted employee. This is, unfortunately, who commits the lion’s share of insider fraud and the losses associated with their frauds tend to be higher.

The Insider Problem

The problem for any executive concerned about this issue is that while only a few employees ever steal from their employer, there are no easy ways to tell which long-term trusted employee will actual dip into the till. That’s why so many of these crimes go on for so long. Your employees know better than anyone where the weak links are in your internal processes. Thus, they are uniquely positioned to take advantage of those lapses.

There is a side benefit from installing best practices to deter fraud and it is a big one. Many of the strategies and tactics used to deter crime will also deter duplicate payments. So by instituting fraud-deterrent practices, you will at the same time be improving your accounts payable operations and taking a whack at the duplicate payment issue, which virtually every organization also has.

The T&E Factor

If there is one area where checks and balances fall down more than any other area, it would probably be the whole travel and entertainment/expense reimbursement review process. More managers than not routinely approve their subordinates’ reimbursement requests without ever looking at the items included on the report. It doesn’t take long for an employee to figure out which managers take this lax approach.

At one point I worked for a company and was responsible for the group that got checks signed. Originally, every single check was reviewed and signed off on by the chief operating officer, a man who would stand for absolutely no fooling around. Eventually I was able to convince the company and him that we had the appropriate controls in place to permit checks under $1,000 to go out with one signature. We immediately saw an increase in T&E reimbursement requests and amazingly, most were for under $1,000. Employees quickly figured out that they could avoid his scrutiny and wrath when he found something questionable but submitting more frequent expense reports staying under the magic $1,000 number.

Fraud losses associated with T&E tend to be lower than other fraud losses. But they should be pursued ruthlessly anyway. Not only is theft wrong but many larger frauds have been identified when the crook could not resist dipping into the T&E pot as well. Typically these thefts start small and grow with each “success.”

Best Practice Prevention Tips

Companies are starting to take a stronger stand when it comes to T&E games. A number are adopting a policy of zero tolerance for any sort of malfeasance. Some organizations terminate employees who have stolen as little as $25. The following T&E best practices will not only help you run a more efficient program, they will serve as a fraud deterrent as well.

1. Have a detailed written T&E policy.
2. Share that policy with everyone who might possibly need it. It’s not a secret.
3. Update it regularly.
4. Spell out the consequences for any T&E fraud.
5. Enforce the policy uniformly — across all titles, include sales and high level executives.
6. Give processors the right to question anything on a report regardless of the rank of the employee submitting the reimbursement request.
7. Insist that the highest level employee pick up the check and request reimbursement for all outside entertainment. If that is not possible, the expense report should be escalated to a higher level for approval.

Other best practices that make fraud more difficult include:

• Have the appropriate segregation of duties for all processes for everyone in the company — no exceptions.
• Don’t return checks to the requisitioner. Have a corporate policy that forbids this.
• Use strong internal controls across all functions.
• Allow surprise audits — especially if you still have a petty-cash box.
• Get rid of your petty-cash box if you still have one.
• Run your employees address file from HR against the addresses in the master vendor file. Check any matches closely.
• Do your bank reconciliations in a very timely manner.
• Install an anonymous tip hotline, if possible.

Conclusion

Fraud will happen. It’s your job to make it so difficult to commit against your organization that fraudsters, both internal and external, turn their attention elsewhere.