Occupational fraud risk is not uniformly distributed across all industries. According to the Association of Certified Fraud Examiners (ACFE), certain businesses, such as construction, real estate, manufacturing, and transportation, are particularly susceptible to employee theft. Other business sectors may not be as vulnerable to fraud but could face specific threats. Here are some industry-specific dangers and suggestions for implementing strong internal controls to prevent fraud.
Construction
Some types of fraud – particularly payroll and billing fraud – are more common in construction businesses. Accounting duties should be segregated, or performed by more than one individual, to reduce both types.
Prevent payroll fraud by having someone outside of your accounting department verify the identities and pay rates on your payroll. Consider using direct deposit instead of checks or cash to pay employees if you aren’t already doing so. Also consider paying surprise visits to job sites to compare employee headcounts to time reports and compensation payments.
With increased scrutiny, kickbacks and bid-rigging can be kept to a minimum. If your organization is suddenly winning bids it hasn’t previously won and certain offers appear to be a stretch, check to determine if staff have followed your bidding policies.
Restaurants
Combating restaurant theft typically requires a multifaceted approach. Integrate your accounting, inventory, and sales systems if you haven’t already. Additionally, to handle possible occupational fraud, conduct background checks on prospective personnel, establish video monitoring around your restaurant, and learn how to recognize red flags. Keep a look out for servers who are constantly flush with cash or purchasing managers who have abnormally close relationships with vendors.
Vendor fraud is especially prevalent in the food-services industry. It can be difficult for managers to keep track of the daily flow of delivery, which shady vendors may take advantage of by inflating their billing to indicate more or pricier items than they actually delivered. Theft can be even more costly if vendors conspire with restaurant personnel. Keep an eye on receiving and accounting staff and investigate any relationships that appear suspicious.
Auto Dealerships
If you own or manage an automobile dealership, solid internal controls typically require your accounting department to post transactions on a daily basis. Post sales of new and used vehicles, repair orders, invoice payments, salary, and cash receipts.
By 1 p.m. on any given day, you should get real-time checkbook balances and other accounting information as effective as of 5 p.m. the previous day. This timeliness increases your ability to detect early signs of fraud and use data to catch a culprit before he or she gets away with theft.
Medical Practices
According to the ACFE, the most common type of occupational fraud in medical offices is embezzlement, which includes stealing cash on hand, forging checks, and lying on expense reimbursement forms. Ensure you segregate duties, like all businesses should. Avoid having one employee who is responsible for both vendor approval and purchasing, or for preparing financial records and reconciling them. If your practice is small, you may want to outsource some accounting tasks to avoid potential fraud.
When recruiting employees, conduct background checks and watch for workers who appear to be living outside their means. Employees should be informed that unannounced audits are possible, but they should not be told what the audits might cover. In addition, never let a nonphysician or nonowner employee sign checks.
Individualized Solutions
Aside from ensuring the separation of accounting functions, certain internal controls can assist businesses in reducing the risk of fraud. Implement a fraud policy that specifies prohibited activities and the repercussions for engaging in them, such as termination and criminal prosecution. Also, provide an anonymous hotline where employees, customers, and vendors can report potential fraud.
Contact us to learn which safeguards will address the most serious fraud threats to your company. We can perform a fraud audit to identify potential areas of weakness and assist you in implementing tighter protections.
@2023
Principal
Director, Fraud & Forensics
anthony.lanasa@hwco.cpa
Enjoy this article? Here are some others you may like:
How Secure Is Your Accounts Receivables Department?
Can You Spot Fraud Perpetrators? Look for Bad Behavior
What Business Owners Can Do About Insurance Fraud
