The High Cost of Theft and Fraud

THE HIGH COST OF THEFT AND FRAUD
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How Internal Controls Discourage Employees From Committing Fraudulent Acts
Internal controls such as separation of duties, centralized processes and redundancy, and are instrumental in discouraging employees from committing fraudulent acts. They achieve this first by pointing out to fraudulent practices such as falsification of address payroll by phantom employees, theft and abuse by outside employees, kickbacks, fraudulent refunds, fraudulent expense reimbursements, altering bank account reconciliation, cash-register theft and fictitious vendors. By pointing to these red flags the internal controls tell a company when to be concerned in areas relating to the mentioned indicators and providing the solution because all these indicators share the same issues.
Why Small Businesses Are More Susceptible To Employee Fraud And Theft
Small business are especially susceptible to employee fraud and theft because in many cases it is only one person responsible for making major business decisions such as buying and selling, authorizing payment, and writing the cheque books. It becomes therefore difficult to adopt a dual control where employee’s duties separation is done as a strategy to make the internal control system to be effective. The people empowered in small businesses to record and process business transactions can also easily engage in fraudulent practices such as cheque tampering or engaging in some other fraud schemes. To reduce that susceptibility, the management of small businesses should have appropriate number of staffing and a designation of the right persons to have supervisory powers. However, there should not be so many people given those powers in or...