Employee Fraud Prevention Quiz

The average organization loses about 6% of its total annual revenue to fraud and abuse by its own employees. U.S. organizations, both public and private, lose billions annually to fraud. Indirect costs include loss of productivity from firing abusive employees, legal action, increased unemployment and government intervention. Common violations involve:

• Asset misappropriation;
• Corruption, such as bribery, illegal gratuities, conflicts of interest, false statements and false overtime;
• Petty theft and pilferage, and use of company property for personal benefit; and
• Payroll and sick-time abuses.

While employee fraud is a threat to every company, many owners and managers seem to ignore it. Manage the risk of fraud in your business by answering the following questions to help you address the problem. Score your answers to see how thorough your fraud prevention strategy is.

Please write down the number of questions you answered NO on - there's a score key at the bottom of the quiz.

Have you:

1. Set an appropriate ethical example for employees to follow, and treated them with respect and fairness, including fair pay?
                           o  YES                        o  NO
   
   
2. Asked your employees to identify ways in which someone could commit fraud at your company and how they would suggest preventing it?
                           o  YES                        o  NO
   
   
3. Developed a code of conduct that explicitly prohibits employees from committing fraud, conflict of interest and other illegal acts and made sure that all employees, vendors and customers receive copies of it?
                           o  YES                        o  NO
   
   
4. Installed a strong system of internal controls, including the segregation of duties among key personnel?
                           o  YES                        o  NO
   
   
5. Developed a clear company policy on time and expense reporting?
                           o  YES                        o  NO
   
   
6. Adopted a “trust but verify” code? (If you need only one bookkeeper, conduct a careful background check before hiring. Be aware of employees who appear to live substantially beyond their means.)
                           o  YES                        o  NO
   
   
7. Verified the credentials of all new vendors before they were authorized to supply the company? (Periodically review vendors and canceled checks to identify possible improprieties.)
                           o  YES                        o  NO
   
   
8. Made sure all disbursements were properly approved?
                           o  YES                        o  NO
   
   
9. Protected yourself against check alterations by adopting electronic transfers for large payments, using direct deposit for payroll, placing a dollar limit on checks and implementing up-to-date check security measures?
                           o  YES                        o  NO
   
   
10. Reviewed original bank statements before your bookkeeper does? (Keep an eye out for unexpected overdrafts or declines in the cash balance.)
                            o  YES                        o  NO
    
    
11. Made sure bank statements are reconciled each month and that a CPA reviews the books on a regular basis?
                            o  YES                        o  NO
    
    
12. Considered the possibility of fraud if something seems unusual, whether it is a disbursement to an unfamiliar vendor or unexpected costs?
                            o  YES                        o  NO

FRAUD PREVENTION SCORE KEY:      

If your number of “no” answers is:

0-3 =   Your company is fairly well protected against internal fraud.

4-6 =   You should be alarmed — you are leaving some doors open for fraud to be committed in your company. Take steps to close those doors as soon as possible.

7-9 =   Take serious steps now to correct the deficiencies in your procedures that may allow or encourage employees to commit fraud.

10 & above = It is only a matter of time before your company experiences internal fraud, if it hasn’t already.

Please contact us with any questions you may have about these preventive measures. We can help you establish controls and policies that minimize internal fraud.