Businesses around the world lose roughly 5% of their revenues annually to occupational fraud, according to the Association of Certified Fraud Examiners. To avoid suffering from internal fraud, you must understand its causes: opportunity and need.
Opportunity: You should know and trust any employee with direct or indirect access to business finances. At the same time, it doesn’t hurt to have their work reviewed often by an outside accountant.
Check internal systems for warning signs or flaws that may create “opportunity” for fraud, such as unsupervised check-writing or financial privileges, managers who seem to take little time off, high employee turnover in financial positions, vague organizational structures and poor control systems, or under-staffed/under-supervised accounting departments.
Need: Need is the best indicator of potential financial fraud, but the hardest to detect.
Warning signs to look out for include financial need caused by illness, loss, debt, drug/alcohol abuse or gambling; employees living beyond their means; job or personal financial frustration; dislike/resentment of company management; unusual and expensive purchases; changes in your financial position inconsistent with business; or sudden or unusual changes in internal processes.