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Key indicators of business fraud and prevention tactics

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In March, the Lehigh Valley’s gross domestic product hit a record $39 billion.

This is fantastic economic news for the Lehigh Valley, but it should be a warning to business leaders to continue to monitor their business environments.

In times when business is booming, it’s human nature to take the foot off the gas and allow items to slip through, creating cracks that can turn into gaping holes if left unattended.

Fraud prevention is vital to any organization. The Association of Certified Fraud Examiners’ 2018 “Report to the Nations” noted the median loss in businesses with fewer than 100 employees was about $200,000, while for those with more than 100 employees, it was about $104,000.

Many of those cases – 46 percent – were detected by accident or tips. Only 27 percent of these occupational fraud cases were detected by management review or internal audit.

It’s best to be proactive and mend those cracks by paying attention to key fraud indicators and implementing strategies to protect your investments.


Many key indicators to fraud are easy to detect if you have good controls in place and catch the issues early. Knowing your numbers, your business and your employees is a necessity.

< A few key indicators to keep an eye on:

< Lack of controls.

< Failure to have or poorly written policies and procedures.

< High turnover rate.

< Key employees never taking time off.

< Missing records.

< Overuse or abuse of journal entries.

< Lagging receivables.

< Unusual increase in capitalized assets.

< Purchases beyond necessity.


Generally, fraud is more likely to occur in an organization if there are opportunity (insufficient controls), rationalization (“I deserve a raise,” “I’ll give it back, it’s a loan,” etc.) and pressure (personal financial pressure, legal problems, etc.).

These three items in combination allow a fraud to occur.

Consider this fraud triangle as a top-level starting point to looking at holes in your organization to identify your largest risks and put a plan in place to mitigate those risks.


There are three preventive items that are low-hanging fruit to fraud prevention.

Many leaders say they know their people, have a zero tolerance policy and have controls in place. Many times the controls they believe are in place are implemented by those few key employees that the employer thinks they know.

< Know your people

One of the easiest things a business owner can do is have continuous conversations with employees to identify their traits and tendencies.

Hiring practices are in place to find the right person that fits the business culture beyond qualifications. Listen to and observe your employees, as this may reveal cracks that need patching.

< Educate your employees

Employees are used to seeing fraud occurrences such as a stolen credit card or identity theft, but are generally shocked when a trusted bookkeeper of 20-plus years has skimmed $200,000 over the last five years.

Make employees aware of your fraud risk policy, types of fraud and the consequences associated with them. Make it personal and show that it affects them – if one of our own steals from us, we may have to downsize.

If you educate your employees, you may find that honest employees start asking questions when things look out of character for other people in the organization, and they may uncover issues sooner.

< Implement internal controls

Internal controls are installed to safeguard company assets, ensure integrity and deter fraud and theft. Segregation of duties is a key component to internal controls, and there is a cost benefit to implementing each control.

As you consider implementing controls, first consider the highest risk areas, then build from there based on your internal risk assessment.

Once you have identified the controls that make sense for your organization, document them, train the employees and review them at least annually to ensure they are working as intended.

Ryan P. Hintenach, Certified Public Accountant and Certified Fraud Examiner, works on business fraud prevention and detection at Concannon Miller, a CPA and business consulting firm in Hanover Township, Northampton County. He can be reached at rhintenach@concannonmiller.com.

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