Fraud refers to an intentional deception, misappropriation or manipulation of a company’s assets or funds for personal gain. Fraud may also arise from willful omission or purposeful failure to state material facts, resulting in financial statements that do not portray a true and fair view of an organizations financial position. Ethical issues are issues that arise due to not practicing appropriate behavior in accordance with the principles of conduct that are considered correct in a given organization.
Familiarize yourself with the organization's operation manual and business code of conduct. This helps you in identifying the guiding principles and values of the organization. The operating manual contains the organizations code of conduct and is applicable to everyone. It acts as a reference point for fraud and ethical issues at the workplace. By familiarizing yourself with the manual, you are able to identify cases of fraud or infringement of the organizations code of ethics and how to deal with such cases.
Carry out surprise audits. Surprise audits can be limited to specific periods (e.g., first quarter) or to a specific department or a certain expense account. These audits help in detecting and deterring fraud as well as enhancing compliance to an organization's code of ethics.
Review all bank and general ledger reconciliations. Fraud normally occurs when accounting is disorganized and not supervised. Look out for check payments and deposits missing from the bank statements. This could signify fictitious deposits or fraudulent payments. Ensure that invoice payments and receipts tally with those in the bank reconciliation statements.
Look out for missing documents. Seek satisfactory explanations as to why they are missing and the steps being taken to recover them or the information they contained.
Carry out background checks on employees to ascertain their employment, credit and criminal history as well as to verify their academic qualifications. This will help in identifying employees with a criminal record or those with credit problems or fake academic qualifications.
Thoroughly review the organizations payroll to ensure that all salaries are accounted for. This helps in detecting payments to ghost workers. Scrutinize payments to employee expense accounts to ensure that reimbursable expenses are per the operating manual and are accompanied by genuine supporting documents such as hotel receipts or medical expense receipts from qualified doctors.
Conduct annual audits not only to detect fraud but to ensure adherence to the operation manual and business code of conduct. An annual audit gives you the opportunity to engage a person not involved in the day-to-day running of your organization an opportunity to carry out an unbiased review of all the operations of your organization.