According to the 2014 Report to the Nations on Occupational Fraud and Abuse, a study by the Association of Certified Fraud Examiners, the typical organization loses 5% of revenues to fraud each year and the median fraud loss in the manufacturing industry is $250,000. Billing schemes, corruption (kickbacks/conflicts of interest) and theft of non-cash assets are the most prevalent types of fraud in the manufacturing industry. Companies must be proactive in identifying and managing fraud risks that can be an expensive and potentially devastating drain on a company’s financial resources. A strong internal control environment will help you safeguard your assets and attract and retain capital by increasing the confidence investors, regulators, audit committee members and the general public have in the integrity of your organization’s financial reports. We recommend that companies periodically consider having a fraud prevention checkup.
To determine the health of your internal control environment and the need for a fraud prevention checkup, answer the following questions:
- Has your company ever performed a fraud risk assessment?
- Are you setting a strong ethical tone in your organization that starts at the top?
- Are you managing fraud risk through management review and monitoring of key metrics?
- Do your employees know what to do if they observe unethical behavior (fraud, theft, safety concerns) and is there a mechanism in place to report concerns anonymously?
- Do you have proper segregation of duties surrounding your cash disbursement and receipt processes?
- Do you have proper controls in place to prevent and deter the misappropriation of inventory and fixed assets?
- Do you have proper controls surrounding vendor management?
- Do your employees have unusually close relationships with vendors or customers?
- Do you have policies in place to restrict or require disclosure of related party relationships?
- Do your employees understand what represents a conflict of interest?
Is it time for a fraud prevention checkup at your company? We have a team of Certified Fraud Examiners that can help. For more information on protecting your company’s assets, contact Nick Lynch at 859-425-7635 or nlynch@deandorton.com or Lance Mann at 502-566-1005 or lmann@deandorton.com.