By Bonnie Buol Ruszczyk

Late last week, I was privileged to attend a breakfast briefing sponsored by one of my clients, Berman Fink Van Horn, entitled Identifying and Preventing Fraud in Business. I’ve worked with a few forensic accountants in the past and always find this topic interesting. This session was no exception. Richard Plansky and John Slavek, both of Kroll, led the presentation and kept the room completely engaged with their discussion.

I wanted to share a few things I learned from this session with my readers. Shockingly, 88 percent of companies surveyed by Kroll were hit by at least one type of fraud in the past year, a more than 20 percent increase over the previous year. 88 percent! And when they looked at who was responsible for these frauds, more than half were perpetrated by people inside the company, 22 percent each by senior and junior employees and 11 percent by agents and intermediaries. Both large and small businesses are at risk, and often it’s some of the most trusted and long-term employees that are successful in their efforts. Unfortunately, no one is immune.

They shared some common red flags as well. Business indicators of potential issues included management override of normal controls, delays in getting requested information, employees hand delivering checks, customer complaints about delivery and recording of payments, and poor customer file access or password change controls. So basically, any unusual activities that could give one person more control that they should have.

On a personal level, common red flags include people who are living beyond their means, have unusually close relationships with suppliers, have addictions to drugs, alcohol or gambling, and are distracted by outside business interests. The one that struck me most was people who rarely take vacations or only take very short vacations. I would have never thought of that myself, but the chances of getting caught increase substantially the more time the person conducting the fraud is away from the office. Who knew?

So what’s a company to do? First of all, get legal advice from attorneys experienced at setting up policies and procedures and in employment matters. The money you spend up front will more than pay for itself down the road. They can help you make sure you have clear segregation of duties, adequate supporting documentation and safeguards in place that discourage fraudulent activities. Secondly, if you suspect a fraud, hire experts to help guide you through the right steps to uncover, prove and address it. Too many times, especially in smaller, close-knit companies, the owner or manager tries to address it on his or her own. What seems like a simple fix rarely is, so hiring professionals can be the difference in recovering what you have lost or losing it forever.

No business is too small or large to be safe. One of the gentlemen at my table walked away saying he needed to do quite a bit of work when he got back to the office. I think he expressed what the majority of the room was thinking.