You’re Serious? You Don’t Have a Fraud Policy?

Though I could believe it, I was still shocked when I spoke recently to a group of over 200 CEOs, not one of whom raised his or her hand when I asked who had a fraud policy. Disheartening still was that most people didn’t even know what I meant when I asked the question.

What is a Fraud Policy?

A fraud policy is similar to a mission statement and core values. Most companies have a mission statement. It says something to the effect of why the company exists and what it was formed to do at the highest level. Core values might further flesh out those elements of a company’s attitude and approach that are indispensable to its running successfully year after year. They might deal with product quality, customer service, community interdependence and so forth.

If you go into any Whole Foods, for instance, you’ll see the mission statement and core values on huge signs near the checkout area at the front of the store. Many companies even spend tens of thousands of dollars (or much more) hiring consultants to perfectly craft their mission and values.

Similarly, a fraud policy clearly states – for all to see – the approach a company takes towards those who commit fraud, steal, lie or cheat.

For instance, a fraud policy could state something like, “If you steal, you will be prosecuted to the fullest extent of the law.”

Why Don’t Companies Create Fraud Policies?

With all that time and energy invested in mission statements and core values, why don’t companies take ten extra minutes to tack on a Fraud Policy and then display that at the front of their stores, websites, factories and warehouses?

In short, I think they don’t know they should. So let me be the first to tell you that you should. Every single company should have a fraud policy.

As you can see, it doesn’t take long to come up with a Fraud Policy, especially since it doesn’t need to be perfectly crafted and expertly displayed. Crudely stating, “If you steal, we will throw your butt in jail so fast it knocks the shoes off your next of kin,” would be sufficient. The point is to share the very direct fact that no one will get away with fraud or theft, and if people do steal from you they will be caught and they will be prosecuted to the fullest extent of the law.

Let’s Make a Plan

So, this week, I want you to take the time to make an official fraud policy. Display it, own it and love it.

In addition to putting that on your to-do list, we’re going to put some things on The Turnaround Authority To-Do List. To honor Fraud Prevention Month, we’re going to address numerous issues about fraud throughout the month of March, and even continue well into April since preventing fraud is a year-round process.

In coming posts I will discuss the importance of prosecuting perpetrators of fraud and the values of an informal fraud policy. I will also share a dozen tips and ways that you can prevent fraud, things that you should watch out for, and much more.

If you know other business owners or managers then this is the time to forward them a link to this blog, and if you haven’t yet subscribed to The Turnaround Authority, I encourage you to do so as we prepare to prevent fraud and make the business world a safer and more honest place.

So, I ask you to share right here: what is your Fraud Policy and what are you doing to spread it throughout your company?

For Fraud Prevention Month, Prevent Some Fraud

March is Fraud Prevention Month, and as far as I’m concerned, that’s a great thing to spread awareness about.

I see fraud all the time. Here’s one of my more recent forays.

So Much Fraud. So Little Time.

In my experience, 75% of fraud is committed by people who have never been caught before. That means the person or people in your business who are likely to commit fraud are not going to come up when you do criminal background checks.

Oh, and don’t forget about family. Family members commit fraud all the time. When you employ family, resentment could lead to stealing, and there’s always a certain sense of entitlement that facilitates matters.

I’ve even seen a CFO who was stealing methodically, and when I looked back I saw that his father had been the previous CFO who was stealing methodically in the exact same way.

Stupid Fraud

Most of the fraud I see is idiotic.

I’ve seen people with folders on their desktops that may as well have been labeled fraud. When I opened the folder there was a spreadsheet inside with every single perpetration.

I’ve seen a CEO who had the account statements from his bank in the Grand Cayman Islands sent right to the office.

I’ve seen a woman who everybody loved and who worked as the payroll processor at a company for 25 years check out of the hospital 24 hours after a heart attack only to process payroll and return to the hospital hours later. She never missed a payroll in 25 years. And as it turns out, neither did the three fake employees she had on the books whose social security cards and accounts she controlled.

And people love to spill the beans. I’ve had people shove USB keys filled with data and file folders and so much more under the door of my hotel room in the middle of the night.

How Do You Minimize and Catch Fraud

Be out of the ordinary.

Fraud happens when complacency abounds. People steal a little, maybe even by accident, and realize that no one was looking, noticed, said anything or seemed to care. So they took a little more. And then a little more. So mix things up.

As I’ve mentioned in another post, I once caught a multi-million dollar fraud by holding a BBQ at 1 a.m. for a 24 hour overnight crew. A guy came up and just told me about something that didn’t make a lot of sense to him. I only caught the fraud by doing something out of the ordinary. When’s your next late night BBQ scheduled for?

Always force your CFO to take an annual two week vacation in which he’s not allowed in the building and he’s cut off from business email. Sit at his desk and do his job, and you’ll be amazed at what you find.

Fraud also happens by working outside the known bounds of your auditors’ checks. If auditors only look at transactions above the set limit of $5000, then once every few months check everything below $5000 also – that’s where all of the fraudulent checks will be. You’ll discover that you’re still paying for leased equipment you’ve long since sold or that you’re paying rent on property you no longer own.

You’ll find all kinds of things. Just do what’s out of the ordinary.

Help prevent fraud in your company and raise awareness of fraud during Fraud Prevention Month and every month hereafter.

What kind of fraud have you found?

P.S. If the answer was none, you’re not looking hard enough.