CFEs offer advice on preventing white-collar crime

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While white-collar crimes such as fraud and embezzlement are prevalent all over the nation, local certified fraud examiners say there are ways of preventing and recovering from workplace crime.|ret||ret||tab|

According to the Report to the Nation on Occupational Fraud and Abuse, published by the Association of Certified Fraud Examiners in 1999, companies lose $400 billion per year to internal fraud and abuse.|ret||ret||tab|

So, what can be done to prevent this from happening?|ret||ret||tab|

"It's important to provide an atmosphere of honesty in the workplace. An honest business atmosphere starts at the top," said Larry Ellison, a CFE for the Springfield accounting firm of Kirkpatrick, Phillips & Miller.|ret||ret||tab|

"Also," Ellison said, "have an open atmosphere with the employees. The most common method of uncovering fraud comes from the tips of fellow employees." |ret||ret||tab|

He added that while small businesses often cannot support elaborate control procedures, "there are simple and practical controls that can be instituted even in the small business. These include cash registers, a system of accounting for all sales tickets, not signing checks in advance and paying only from original vendor invoices. If you don't pay from the original invoice, another check could be issued without the business owner knowing."|ret||ret||tab|

Ellison said his best prevention tip is for company owners to get their bank statements directly from the bank unopened. "This way, the owner can review all the checks and other transactions in the statement personally," he said.|ret||ret||tab|

Angela Morelock, CFE, of the accounting firm of Baird, Kurtz & Dobson, agrees that internal controls are essential to preventing white-collar crime.|ret||ret||tab|

"The No. 1 cause of fraud is internal control weaknesses," she said. "There should be a segregation of duties. This creates a system of checks and balances. Don't have the same person reconciling bank statements, collecting cash receipts and posting them, as well as making the daily deposits. If the same person is doing all these things, the opportunity for fraud goes way up."|ret||ret||tab|

Morelock said there should be three people dealing with the money.|ret||ret||tab|

"There should be one to collect it, one to input it and one to make the deposit," she said. For companies that can't afford three different people to handle the money, Morelock seconded Ellison's advice on bank statements. "The owner should receive the bank statements unopened and review the canceled checks and statements."|ret||ret||tab|

Another preventive measure is to have a good pre-employment screening process. "Run background checks and call references," Morelock said. "Don't shortcut the screening process."|ret||ret||tab|

A company that does become the victim of white-collar crime has a number of options for recovering the loss.|ret||ret||tab|

One option is fidelity bond coverage for a particular employee, such as the bookkeeper. Another option is employee dishonesty insurance which covers all employees and can be purchased through an insurance agent. |ret||ret||tab|

"There are a lot of businesses out there without this type of insurance," Morelock said. "This coverage can make it easier to get your money back. A lot of the employees committing white-collar crimes don't have any assets, so it's hard to get them to pay you back."|ret||ret||tab|

Roseanne Galloway, office representative for State Farm agent Burlin Hefley, said the employee dishonesty insurance policy they offer is in conjunction with a business policy.|ret||ret||tab|

"It's a rider that provides fidelity blanket coverage for all employees, or you may schedule coverage for select employees," she said. "The coverage includes fraudulent acts of the company employees, including officers and directors, if it's a corporation."|ret||ret||tab|

A company can purchase between $5,000 and $50,000 worth of coverage as a rider. If higher coverage is desired, a fidelity bond many be purchased, Galloway said.|ret||ret||tab|

At Arthur J. Gallagher & Co., a business owner can purchase higher limits of employee dishonesty coverage with premiums commensurate to the level of coverage. "Most business owner policies have a built-in level of protection," said Sharon Tartamella, director of marketing for Arthur J. Gallagher & Co.'s Springfield office. "The premium limit is determined by the class of business (restaurant, office, retail store, etc.) and the number of employees they have," she said.|ret||ret||tab|

If the customer's particular policy doesn't have built-in employee dishonesty coverage, the business owner still can purchase the coverage separately or have it endorsed onto the package policy, Tartamella said. She added that employee dishonesty coverage not only covers money but will provide coverage for inventory, such as food in restaurants or goods at a retail store.|ret||ret||tab|

Employee dishonesty coverage and fidelity bonds can be a wise investment, but one that has to be made before the crime occurs. |ret||ret||tab|

After fraud or embezzlement takes place, Morelock said, the business owner can recover a loss by filing a criminal suit or a civil suit against the individual responsible.|ret||ret||tab|

"If you file criminal charges, the court will often order restitution," she said. "If you go with civil charges, you can claim all embezzlement losses, interest on that money plus accounting and attorney fees."|ret||ret||tab|

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