Preventing Industry-Specific Fraud: The Power of Strong Internal Controls

Occupational fraud isn't a one-size-fits-all problem. Different industries face varying degrees of vulnerability to fraud risks, with unique challenges to address. In this article, we explore industry-specific fraud risks and how businesses in these sectors can protect themselves through robust internal controls.

Construction Industry

Construction companies often grapple with payroll and billing fraud. To mitigate these risks, it's essential to segregate accounting duties, ensuring they are performed by multiple employees. Here are some preventive measures:

• Independent Verification: Have someone outside your accounting department verify the names and pay rates on your payroll.
• Direct Deposit: Consider switching to direct deposit for employee payments to reduce the risk of fraud.
• Surprised Site Visits: Conduct surprise visits to job sites to compare employee headcounts to time reports and wage payments.
• Bid Scrutiny: Watch out for kickbacks and bid-rigging; verify that employees are following your bidding processes.

Restaurants

Restaurant businesses require a multipronged approach to combat theft and fraud. Here's how they can bolster their internal controls:

• Integrated Systems: Integrate your accounting, inventory, and sales systems to keep a close eye on financial activities.
• Background Checks: Conduct thorough background checks on new hires to identify potential red flags.
• Video Surveillance: Install video surveillance systems throughout your restaurant.
• Vendor Vigilance: Pay attention to suspicious activities such as employees with unusually close relationships with vendors.
• Vendor Fraud: Keep a watchful eye on deliveries and vendor bills, as vendor fraud is common in the food-services industry.

Auto Dealerships

Effective internal controls in auto dealerships require timely financial reporting. Post transactions daily and have access to real-time financial information to spot fraud early. Here's how to do it:

• Daily Transaction Posting: Ensure daily posting of vehicle sales, repair orders, invoice payments, payroll, and cash receipts.
• Timely Reporting: Access real-time financial data to identify fraud early.
• Preventing Loss: Timeliness helps catch perpetrators before they can get away with theft.

Medical Practices

In the medical field, embezzlement is a common form of occupational fraud. Preventing this type of fraud involves specific measures:

• Duties Segregation: Avoid having one employee handle both approving vendors and reconciling financial records.
• Outsourcing: For smaller practices, consider outsourcing some accounting activities to enhance oversight.
• Background Checks: Conduct background checks on new hires.
• Monitoring: Keep an eye on employees living beyond their means, and make unannounced audits a possibility.
• Check Signing: Only allow personnel without access to the accounting system to sign checks, or require dual signatures

Customized Solutions

Businesses can also enhance their fraud prevention efforts with tailored solutions:

• Fraud Policy: Implement a clear fraud policy that outlines prohibited activities and their consequences, including termination and criminal prosecution.
• Anonymous Hotline: Offer an anonymous hotline for employees, customers, and vendors to report potential fraud.

In conclusion, every industry faces unique fraud risks, and strong internal controls are crucial to preventing fraud. Businesses can reduce their vulnerability by customizing their internal control measures and staying vigilant. For controls tailored to your specific industry, consider a professional fraud assessment to identify and strengthen your protections.

If you have any questions or need assistance in implementing effective internal controls, don't hesitate to reach out to us. We're here to help safeguard your business against fraud.

How HoganTaylor Can Help

If you have any questions about this content, or if you would like more information about HoganTaylor’s Forensic, Valuation & Litigation Support practice, please contact Clay Glasgow, CPA, ABV, CFF, CFE , Advisory Partner. 

INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.