Dennis Fortnum Canadian Managing Partner, KPMG Enterprise

Proactively managing fraud

Our experience shows there is an increased risk of fraudulent activities within private businesses where people hold multiple roles or differing responsibilities, with most internal embezzlement involving someone from within the accounting department. Warning signs of fraud related situations can therefore be that much more difficult to detect within private companies, especially where prevention procedures and policies might not be as rigorously established as within larger organizations. This can lead to a prolonged period of time before a fraudulent event within a company is discovered, on average up to 18 months.

The intent to commit fraud usually derives from an incentive or a personal need. Then, an opportunity to commit fraud needs to be present in order for the act to be undertaken. This can be exemplified sometimes when an employee holds the dual responsibility of bookkeeping and purchasing for example. Finally, fraudulent employees can rationalize and perpetuate their actions by the way they are treated in the workplace, whether those reasons are founded or not.

There are best-practices to prevent fraud that business owners might wish to consider in order to protect themselves and their businesses such as completing detailed background checks of employees, having a code of conduct including articulating clear policies regarding employee theft and repercussions, providing training programs to detect warning signs of fraud, and/or creating a reward system for reporting suspicious activities. Operationally, organizations could also implement the following:

• Analyze and review all expenditures
• Document all expense reports
• Review all bank statements
• Watch company credit cards
• Ensure cash balances are reported accurately
• Conduct frequent physical inventories
• Separate bookkeeping functions
• Audit at various times during the year

In the face of fraud, as with any workplace issue, business owners are advised to be proactive rather than reactive. Pre-establishing prevention procedures and devote time and resources to developing anti-theft policies in the workplace will ultimately help avoid the costly and time consuming process of investigating frauds and irregularities.

  articles in this issue

The Risk of Fraud Starts with the Bad Guy
 Read the article

Battling fraudsters can get personal for owner operators
 Read the article

  On Demand

Managing the risk of cheque fraud
KPMG Enterprise™ and Financial Executives International (FEI Canada) joined forces to present: Managing the risk of cheque fraud. This inaugural webcast from FEI Canada’s Private Company Roundtable Series touched upon detecting cheque fraud, internal controls and immediate actions to be taken upon suspicion of fraud.

Tim Zahavich, CFO, St. Joseph Communications, and Chair of FEI Canada’s Private Company Committee, moderated the panel discussion which included insights from:

• Peter Armstrong, Senior Vice President, KPMG Forensic Inc.
• Sunil Mistry, Partner, KPMG Enterprise
• Jasbir (Jas) Anand, Senior Director, Fraud Strategy, CIBC
• Jennifer Hill, VP, Financial Institution Practice, Marsh Canada Ltd.

Click here to launch the replay. Please note that you will have to register before accessing the webcast replay link.

A PDF copy of the presentation can be accessed here.

  insights

  Recommended Reading

Expense Report Fraud: Chump change or damaging dollars?
Greed, Opportunity, Need and the Expectation of not getting caught. Commonly known as the “GONE” theory, the presence of these factors creates the perfect storm for workplace fraud… Read more

KPMG Enterprise™ is a network of professionals devoted to helping business owners and entrepreneurs grow thriving enterprises and build value in their business.

For further information about how KPMG Enterprise can help private companies, visit kpmg.ca/enterprise.