What Is Company Fraud And How Do You Stop It? (Part 2 Of 2)

In the first article of this series, I defined fraud,need to be embedded in your day-to-day
discussed how it can occur in a company, andmanagement and monitoring processes, and they
provided some real-life examples of when and how itneed to also leverage available information technology.
has occurred in the corporate world. (To read the firstSegregation of Duties as a Corporate Expense
article, visit inlogik.com/12530+0+free-articles.htm.) In thisManagement Control
- the second - article, we get down to nuts and bolts;Given the nature of accounts payable and the related
how do you minimize fraud in YOUR company?functions, segregation of duties is a crucial
There are two main steps required to stop fraud inconsideration. Following is a partial list of duties related
your company: Step 1 - identify your fraud risks; Step 2to accounts payable and how they should be
- implement corporate expense managementsegregated.
software controls to minimize those risks.1) The person responsible for bank reconciliation should
STEP 1 - Identify Your Fraud Risksnot:
Is your company vulnerable to any of the following?Handle unclaimed property reporting
- Variances between hardcopies and computerizedBe a signature on a bank account
reports;2) The person who is check signature should not:
- Departure and return airfare on different dates butAuthorize invoices for payment on an account that he
with no corresponding hotel expenses;she is also a signature
- Meals on weekends or in non-work locations;Have ready access to the check stock.
- Poor descriptions and incomplete documentation such3) A person who is responsible for the check stock
as a missing boarding pass, itinerary or receipt;should not:
- Dates out of sequence;Be an authorized signature
- Old receipts;Handle the bank reconciliations
- Nasty or inconsistent explanations to questions4) The person responsible for the master vendor file
regarding claims. A common response is "how dareshould not:
you question me?" ;Be an authorized signature
- Copies;Be able to approve invoices for payment
- Altered receipts;Handle unclaimed property
- Credit card statements or printouts instead of5) Individuals responsible for accounts payable
receipts;functions should not also be responsible for accounts
- Airline tickets:o Employees have been known to payreceivable.
for airline tickets using frequent flyer points and thenOther Corporate Expense Management Controls
claim the cost of a ticket as an expense from theSome other corporate expense management controls
company. This can be considered a fraudulentthat are helpful in combating fraud include:
activity;o There are numerous mechanisms employedRequiring business purchases be made on a corporate
to defraud an organization through the use of airlinecredit cards
tickets. Organizations need to be diligent when dealingMonitoring transactions on the corporate credit cards
with airline ticket exchanges, refunds, partial refundsDirect pay of corporate credit cards
and possibility the flight being claimed was not takenPre-population of corporate credit card data in
(evidence of car rental, parking at the home airport,expense report preparation
meals or other expenses in the destination are notA good system of approvals to prevent unauthorized
present).reimbursements
- Duplications to watch out for:o These may not beA thorough review of an individual's expenses over a
identical amounts as in the case of partial hotel bills;operiod of time
Past due charges on mobile phone bills;o The sameImplementation of a PostProcurement environment
expense may be reported twice in one period or in(historically we have been working in a
two or more periods with a different description andpre-procurement environment (Purchase Requisition,
coding.Order, Receipt, Remittance, 3 Way Matching, Journal,
- Claiming personal items can also be a source ofetc.) which can lead to at least 20% of transactions
fraud against the company. These can include:o Travelbeing disputed.)
for family members;o Retail or personal purchases;oCorporate Expense Management Software
Excursions added on to business trips;o Extra days inCorporate expense management software
a hotel, car rental etc.;o Gift shop, massages, etc. mayautomates the management of expense claims,
be included on a hotel bill;o Non-authorized trips.significantly reducing the risk of error or fraud and
- Organizations should also be diligent in identifyingcomprehensively managing all purchasing data. A good
expenses being claimed that were not incurred. This iscorporate expense management software solution
especially relevant when related to the claiming ofcan reduce processing costs by as much as 90%, so
meal expenses and meal per diem expenses;the payback period is tangible and measurable (often
- Inconsistencies such as taxi and rental car claims forless than 6 months).
the same portion of trip or mileage calculations that areWhen choosing a corporate expense management
clearly inflated;software solution, ensure that it can manage digital
- Overstatements may or may not be deliberate,data from a range of B2B transactions including
however they include typographical errors ($34.95purchasing cards, travel expense cards, fleet cards,
reported as $3,495) and incorrect exchange ratemobile phones, and Internet purchasing. Information can
conversions.then be integrated into operating systems including
There are numerous other less obvious activities thathuman resources, accounts payable, general ledger,
fail to comply with legislative and/or company policies.and ERP. Furthermore, make sure that it
Examples of these failures include improper coding,accommodates all major credit card transactions, that
such as: hotel bills that include meals, phone, etc., thatit is non-bank specific, and that it can operate with the
are reported as lodging; car rental which may not fallworld's leading ERP systems.
into a company authorized class; and the use ofAnd finally, before choosing your corporate expense
prohibited vendors.management software solution, consider the fact that
STEP 2 - Implement Corporate Expense Managementtechnology is not the entire story in achieving
Software Controlscorporate expense management outcomes. Cultural
In order to minimize the risk of fraud in your company,issues, resistance to change and corporate ownership
your corporate expense management softwareare the greatest barriers to the growth of card
controls should be designed to provide and support theprograms and the realization of benefits. You must be
5 W's (Who, What, Where, When, and Why). Theyconfident that your corporate expense management
must ensure that all reasonable, authorized expensessoftware solution provider has a customer-focused
incurred in order for a staff member to perform theirconsultancy based approach to client relationships of
job responsibilities are paid with the corporate creditwhich technology is only one very important part.
card and documented with an original, valid, unalteredConclusion
receipt, and they must be implemented throughout theFraud is a significant cost to many (if not most)
entire organization, at all levels and in all functions.companies. But it doesn't have to be. By identifying
In practice, these corporate expense managementyour fraud risks and implementing appropriate
software processes, controls, and procedures arecorporate expense management controls and
very broad. They relate to items such as approvals,corporate expense management software, you can
authorizations, verifications, reconciliations, segregationvery effectively minimize your fraud risks. And with the
of duties, reviews of operating performance,right corporate expense management software
background investigations, and physical security. Theysolution, ROI within 6 months is very achievable.