Lessons Learned: Segregate Duties to Unmask Employee Fraud

Borrowing a case from the Internal Revenue Service’s list of recent fraud investigations, an experienced office manager was seen as a trusted employee and was given little to no supervision. Unfortunately, she was wearing that trust as a mask to disguise her fraudulent behavior.

Over a span of two years she secretly forged documents allowing her to steal almost $120,000 and commit tax evasion. This was possible because of a lax office environment with little to no internal controls. So how do we unmask the hidden dangers of employee fraud to help prevent these behaviors?

Segregation of duties is often considered to be one of the keys to having successful internal controls in a business. In the case above, the office manager did not have anyone working with her on a day-to-day basis; if she had, they may have observed improper financial procedures well before they were discovered two years later. A business should have more than one person required to complete a task, especially one involving finances.

This helps in two ways:
1. Minimizes minor mistakes. With two or more sets of eyes going over a task, the risk of missing a mistake is significantly reduced.
2. Reduces opportunities for fraud. A successful scheme often heavily relies on one element of the fraud triangle: opportunity. If an employee has proper supervision and knows that several people will be involved in a financial procedure, the lack of opportunity may keep their fraudulent behavior in check.

For more information on how internal controls can help reduce your risk of occupational fraud, please contact a Certified Fraud Examiner at Piercy Bowler Taylor & Kern.
Fraud case source: http://www.irs.gov/uac/Examples-of-General-Fraud-Investigations-Fiscal-Year-2014


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