The Importance of Internal Controls in Combating Fraud

Fraud can come in many forms and hinder multiple elements of an otherwise successful company, so it is important for a business to be informed and prepared to combat these attacks.

Featuring Matthew Fishman, Vice President & Senior Treasury Management Consultant of Banner Bank, and moderated by PBO Advisory’s Consulting CFO Rick Dahlseid, our most recent webinar discussed both the common causes and proven solutions to fraud in the workplace.

Here’s a few key takeaways from the webinar:

1. Fraud can appear in many forms and from many sources.

Whether it includes financial statement fraud, misappropriation of assets, corruption, embezzlement, or another type of fraud, each type can be extremely detrimental to the functionality and success of a company. Cybercrime is also a booming sector of fraud. The rise in electronic payment methods like Zelle, PayPal, Venmo, cryptocurrency, and RTPs has opened the door to an even larger amount of opportunities for fraud, as well as malware transmitted through Business Email Compromise (BEC), which is the key source of fraud attempts since 2019.

2. There are several things you can do to decrease the likelihood of fraud occurring (or to catch it early when it does).

    • Establish a written policy or procedure manual that is easily accessible and updated often. Include information such as fraud detection as well as an IT policy that includes the use of electronic equipment and requirements to abide by when employees are utilizing their personal devices to work.


    • Always utilize dual control for ACH and wire transfers; one user to initiate, another to improve.


    • Educate your employees and staff; they are your first and last line of defense. Make sure they are aware of what to look for, both in person and online. Confirm that everyone within your organization is navigating the internet (specifically their email) with care.


    • Reconcile accounts daily to check for indications of potential fraud.


    • Keep detailed records and document everything. Utilize payroll services such as ADP, Paychex, or Paycom to facilitate payroll. Find and implement programs and procedures to keep a close eye on account receivable and accounts payable management, as well as cash management. Also, maintain constant, detailed records of inventory. There are a multitude of SaaS (Software as a Service) programs like QuickBooks and Netsuite that can help streamline these processes.


    • Last, and perhaps most importantly: know your employees. Become acquainted with their behaviors, their interests, and other aspects of their life. Observe and listen so you will be more likely to spot the signs of fraud in your workplace.


3. When you notice that fraud occurs, act quickly and decisively.

    • At the first sign of fraud, notify your bank immediately. Sometimes, they may ask you to suspend fund transfer capabilities until the scope and origin of the problem is defined.


    • Report the fraud to local law enforcement and the FBI’s IC3 division.


    • Record what happened, what was lost, and the steps you took to report and solve the incident, as well as any attempts made to recover the funds involved.


By preparing both offensive and defense strategies to different types of fraud, companies can decrease their likelihood of being targeted and attacked by scammers.

For more information on the importance of utilizing internal controls to combat fraud, contact Rick Dahlseid.

Rick Dahlseid

Consulting CFO