How to Create a No-Fraud Work Environment

Leslie Midgley, CAE, executive VP and CEO of the Texas Land Title Association (TLTA), is no stranger to fraud. Although it’s been more than a decade since the group’s former CFO embezzled north of $150,000, Midgley said “it’s not one of those things that you forget.”

Along with being unforgettable, fraud is also on the upswing. According to Kroll’s Annual Global Fraud and Risk Report  (opens in a new tab), 82 percent of executives experienced instances of fraud at their companies between July 2015 and July 2016—up 7 percent from Kroll’s previous report in 2015.

Conducted by Forrester Consulting, the Kroll report  (opens in a new tab) [PDF] includes findings from in-depth interviews and online surveys with 545 executives working in different industries worldwide. The report reveals that current and former employees are not only the most common perpetrators of fraud but also the likeliest whistleblowers.

Midgley said that after TLTA’s experience of a staffer committing fraud, the group took these steps to create an office environment that was inhospitable to financial fraud but warm and accessible to its staff:

Scrutinize potential hires. “The three things that are needed for someone to carry out fraud [are] the need, the ability to rationalize the act, and … the opportunity,” Midgley said. “There is only one of those things that the employer can control, and that’s the opportunity, so that’s where all of your focus is.” And that focus starts with new hires.

Midgley recommends taking a close look at gaps in resumes, facts that don’t make sense, or education that doesn’t quite add up. While most people will probably write off certain inconsistencies, thinking there must be a good explanation for it, she suggests putting on an investigator’s hat, and saying, “Hmm, that doesn’t make sense. I’m going to run this down.” Midgley adds that a thorough background check is key too.

Notice red flags. If someone in an accounting role is saying, “I’ve got this under control,” or “You don’t need to look at this, but sign right here,” those are red flags. Also, take note if an employee refuses to go on vacation (because he or she is afraid someone might detect the fraud in their absence) or is boasting about purchases that are clearly outside of his or her pay grade.

Create a culture where staff are open and comfortable. TLTA first learned about the embezzlement through a staff member who noticed something amiss and confided in the leadership. Midgely said it’s important to create a “culture where you very intentionally tell everybody, ‘If there is anything here that you’re concerned about, I want you to let me know. And there won’t be any recrimination. You’re going to be protected.’”

During the FBI’s investigation at TLTA, an agent also recommended that leadership regularly remind staff that they are involved in the group’s finances. For instance, Midgley said, “Stick your head out of your door and say: ‘Hey I’m closing my door because I’m going to be reviewing bank statements for the next 30 minutes.’” These reminders might serve as a deterrent for someone thinking about committing fraud.

Establish internal controls. Even if you think your organization has good internal controls in place, you might not. An internal assessment of your finance department’s vulnerabilities—not just with your financial staff but also with other departments and members—could shed light on weaknesses in your processes. Controls TLTA imposed include having multiple reviews on bank and credit card statements, getting approval and authorization for disbursements, requiring two signatures on checks, and separating financial duties, such as payroll and accounting, that together could create an opportunity for fraud.

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