Students Write Fraud Prevention Checklist


Starting Out 

For this issue, Sandra S. Lang, associate professor of accounting and chair of the Business Division at McKendree University in Lebanon, Ill., reports on an internal-controls list the students in her fraud examination class devised. Through the process, Dr. Lang says, her students' eyes were opened when they saw the lack of controls in local businesses and how easy it can be to install practices that could prevent fraud.

According to the 2006 ACFE Report to the Nation on Occupational Fraud & Abuse, fraud-related activities cause small companies to lose more money than large organizations. The report indicated that cash was misappropriated in roughly 88 percent of the cases and that businesses with fewer than 100 employees represented 36 percent of the cases. Also, the median loss in these small businesses was $190,000. These statistics should jolt every small business owner. The question remains, "What can be done to prevent fraud?" Anti-fraud students should formulate good answers to this question.

Most small business owners aren't accountants, nor are they trained to detect fraud. But business owners can do several things. Employees must believe that the company has taken steps to prevent and to detect fraud.

During a discussion in a fraud examination course that I teach (my most popular class), students mentioned instances of asset misappropriation about which they were aware. One example was a father of a high school student they knew who worked in the school cafeteria and stole cans -- and later cases -- of food. When he retired, investigators found his basement lined with shelves of canned goods. He had provided himself with a tangible retirement plan to supplement what he believed was the school's inadequate program.

In another case, a high school student misappropriated coupons that provided discounted goods for friends so they could save up to $5 on purchases of convenience store goods. Although these and other examples represented minor frauds, they upset the students since they often could have been easily prevented. The students and I worked together to develop a list of measures that every small business should take to protect against the possibility of fraud in their companies. The students added to the list during class discussions and reworded some of the items.

Businesses can implement this list with little or no cost. Although there might not be a way to measure the savings, if businesses do detect fraud, the potential losses will be minimized. At the very least, business owners will become aware of the need to protect assets -- especially cash. It will be worth their time to work through the list.


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