In a 2011, global study by KPMG, “Who is the Typical Fraudster?”, 348 cases of fraud from 2008 through 2010 were investigated.  Over 87 percent of the cases were committed by a male, most often in their late 30’s and early 40’s.  The perpetrators most often are in a high level finance position.  They frequently place staff around them who do not challenge them, rarely take vacations, often seem stressed, collude with suppliers or customers, and bully or intimidate colleagues.  Anonymous whistleblower hotline reporting played a key role in bringing incidents to light (as it has in other prevalent fraud surveys).

Given the economic recession and increased financial pressures, the study predicts that an increased number of fraud incidents will come to light in the coming year or two.

The average fraud incident in the study took 3 years to be identified.  Previous surveys have shown that one of the best ways to reduce the fraud discovery time and financial impact is to implement a whistleblower hotline.  The Association of Certified Fraud Examiners (ACFE) survey found a 50% reduction in the fraud discovery time and 67% reduction in median fraud losses when a hotline is in place.  Implementing a hotline is a best practice in reducing fraud.

Here are some other best practices to consider:

• Don’t have one person responsible for all financial processes.  For example, have one employee create and make bank deposits and have someone else reconcile bank statements.  If you run a retail store, have different employees reconciling cash registers.
• Require two signatures on checks over a predetermined amount.
• Have multiple people responsible for purchasing, counting, and receiving inventory.
• Rotate inventory purchasing among different people.
• Set up a vendor system that requires purchase orders and invoices.
• Require employees to take vacation.  In addition to reducing fraud risk, making it clear that everyone must take vacation time improves employee morale, improves organizational cross training, and helps employees deal with personal concerns.
• Meet with vendors regularly to discuss the goods and services they provide.
• Maintain physical and computer security on all confidential and financial information.  For example, ensure tight security for employee social security numbers, bank account numbers, and petty cash (if not eliminating petty cash entirely).  Lock up sensitive documents.
• Have a third party auditor review books and financial processes.