I took to heart a recent post by a prominent advisor who speaks into the healthcare world and the dental industry in particular. His message to dentists was, if you are not thinking about fraud within your healthcare practice, you are likely being defrauded… it is your destiny.
You may think this is not a valid conclusion, however, if we are not vigilant to ensure we have effective internal controls, then as business owners we are setting ourselves up to be targets of fraud.
Occupational fraud risk is not necessarily shared evenly by all business sectors. Certain industries — for example, construction, real estate, manufacturing and transportation — are usually more vulnerable to employee theft, according to the Association of Certified Fraud Examiners (ACFE) based in the U.S. Other industries may not have greater fraud exposure but face specific threats.
Here are some industry-related risks and some ways how businesses in these sectors can prevent fraud with strong internal controls.
Construction
Some types of fraud are more prevalent in the construction industry, particularly payroll and billing fraud. Segregation of accounting duties — having them performed by more than one employee — is critical to reducing both types.
To prevent payroll fraud, have someone independent of your accounting department verify the names and pay rates on your payroll. If you do not already, consider paying employees using direct deposit, rather than with cheques or cash (yes, you read me right?). And consider making surprise job site visits to compare employee headcounts to time reports and wage payments.
Kickbacks and bid-rigging can be kept to a minimum with extra scrutiny. If your company is suddenly winning bids that it has not won in the past and certain bids seem like a stretch, verify that employees have followed your bidding processes.
Restaurants
Successfully combatting restaurant theft generally takes a multipronged approach. If you have not already, integrate your accounting, inventory and sales systems. And to manage potential occupational fraud, conduct background checks on new hires, install video surveillance throughout your restaurant and know how to spot red flags. For example, keep your eye on servers who are always flush with cash, or purchasing managers with unusually cozy relationships with vendors.
Vendor fraud is particularly common in the food-service industry. It can be hard for managers to keep track of the daily stream of deliveries, which shady vendors might exploit by inflating their bills to reflect more or pricier items than what they delivered. If vendors collude with restaurant employees, theft can exact a heavy financial toll. Keep an eye on receiving and accounting employees and investigate any relationships that seem suspicious.
Healthcare Practices
According to the ACFE, embezzlement — such as stealing cash on hand, forging cheques, insurance scams and lying on expense reimbursement requests — is the most common form of occupational fraud in medical practices. As all businesses should, be sure to segregate duties. Avoid having one employee in charge of both approving vendors and purchasing or preparing financial records and reconciling them. Finally, have simple day-end procedures, initially signed off by you. If your practice is small, you might want to outsource some accounting activities to help prevent possible fraud.
Conduct background checks when hiring and keep an eye on any workers who seem to be living beyond their means. Employees should know that unannounced audits are possible, but do not tell them what the audits will cover. Also, never let a non-physician or non-owner employee sign cheques.
Customized Solutions
In addition to requiring the segregation of accounting duties, certain controls can help any business minimize the risk of fraud. For instance, put a fraud policy in place that spells out prohibited activities and the consequences of committing them, including termination and criminal prosecution. And offer an anonymous hotline that employees, customers, and vendors can call to report potential fraud.
For controls that address the greatest fraud threats to your company or industry, feel free to contact us. We conduct a fraud audit to assist in identifying potential points of weakness and help you implement stronger protections.
