Procedures to Prevent Loss from Fraud

1. Increase Fidelity Bond coverage. Most policies provide only $25,000 of coverage. An increase to $200,000 would be relatively inexpensive.

2. Owner/manager should receive unopened bank statements and review the cancelled checks. Automatic transfers should be reviewed closely. Unauthorized checks would be discovered by viewing signatures and payees.

3. Tax notices shoul be received by the owner/manager and sent to a third party such as the CPA. Often tax deposits cannot be made timely if cash has been taken. Penalty notices are generated from the IRS for failure to pay and late payment of payroll tax deposits.

4. Owner/manager should sign the 941, 940 and state unemployment forms and mail. This insures that the returns are timely filed and allows a review of wages that have been paid to each employee. The owner/manager should look for fictitious payees and inflated wages.

5. The owner/manager or finance committee should review internal monthly financial statements. This review should include determining significant fluctuations in accounts in comparison to prior periods and reviewing details of these accounts to determine the causes of the fluctuations. A periodic review of the detail of expense accounts should be done and can be accomplished by reviewing the charges listed on the general ledger.

6. Owner/manager should consider approving monthly or annual budgets and comparing to financial statements. Theft that has been “buried” in expense accounts might be revealed by investigating accounts that are significantly over budget or that have increased significantly from the prior year.

7. All incoming cash and checks should be listed by one employee and deposited by another. Also, the same person that controls cash should not do the bookkeeping/accounting. Separation of duties among at least a couple of employees prevents one employee the capability of covering up theft.

8. Blank checks should be controlled to prevent unauthorized usage of checks.

9. Consider confirming receivables annually. A disputed balance from a customer or client might indicate that money has been taken instead of applying the payment to the account balance.