How to Detect and Prevent Employee Cheque Fraud

Many organizations come across issues of employee cheque frauds. Although it is not one of the major concerns for any CEOs, but they do tend to drain the organization on the bottom line. These kinds of frauds not only affect externally but internally as well. The morale of the employees tends to go down because everyone starts thinking that if one could do it, then they could too. And externally, the name of the organization is put at stake because they were unable to detect the fraud. In the 2012 report of ACFE (The Association of Certified Fraud Examiners) it was stated that a normal organization loses a 5% of their revenue in employee frauds, which is quite a shocking sum.

How to Detect Employee Cheque Frauds

Unusual behaviour:

The HR must always be on the look-out for their employees and their behaviour. A suspicious employee is one who will try to be perfect. When a worker doesn’t take a day off and works for more hours, regularly, then such people need to kept under surveillance. Normal employees will try to take leaves whereas any employee who is suspected of suspicious activities would not do so. An employee committing fraud would attend office everyday in the fear of getting caught. Such people even fear sharing work although they are over burdened. The HR must be observant and look after the minute details.

Missing Documents:

Those documents which never seem to surface on top must be checked for fraud. It is possible that sometimes a few documents get misplaced here and there. In such a case, the auditor must look for reason why it happened and whether the company did anything to look for it. Often times, the auditor may allow the company to select an alternate item without stating any problems.

Common names and addresses for refund:

Employees in the sales department can make bogus refunds to customers on some merchandise. Sometimes, these sales employees write their own address or their friend’s address to get the refund. They usually give common names and addresses which repeat after some time and commit fraud by eating the company’s money.

Increased scrap:

Employee fraudsters in manufacturing companies often brand a certain amount of things in scrap so that they can sell that material elsewhere and get money from it. Since items that go in scrap are not subject to harsh scrutiny, they are usually ignored by the company. Scrap is one of the most convenient ways to embezzle money by reselling the material.

How to Prevent Frauds:

Know your Employees:

The HR needs to keep a record of how employees are getting through their work and whether they have grievances against the boss or the company. Sometimes, by listening to what the employee has to say, the company can detect if there are chances of frauds taking place. Employees who are not happy at the workplace need to be confronted first so that potential fraud risks can be recognized. Each employee’s records must also be checked and updated from time-to-time so that the company knows what s/he is upto.

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Employees who are not happy at the workplace need to be confronted first so that potential fraud risks can be recognized.

Inform Employees:

When hiring employees, the company must make it known that no kind of false play will be entertained. They must be warned that strict actions can be taken under suspicious behaviour. The employees must be made aware of the fraud risk policies and the consequences that are associated with it. Even the employees who are loyal need to be made aware of it and the signs of it, so that they too can help the office fight fraudsters.

Hire Experts:

Those who are usually Certified in Financial Forensics can be of great help to the organizations to detect employee frauds. These people can also help in forming the company’s antifraud policies and the procedures that follow it. The professionals are Certified Fraud Examiners (CFE) and Certified Public Accountants (CPA) who are able to provide services from forensic analysis and control audits to consultations.

Proper Documentation

Proper documentation helps reducing the risk of an employee fraud from taking place. When things are properly documented, the boss can verify whether the receipts were deposited or not. Every transaction and cheque must be noted in an orderly manner. Business becomes more transparent and there are lesser chances for an employee to commit a fraud.

Teva Canada Ltd. V. TD Canada Trust

There have been a great number of cases where employees have written fake cheques, submitted them to the bank, and encash the company’s money. In the Teva Canada Ltd. V. TD Canada Trust, 2017 SCC 51, the Supreme Court of Canada released its long-awaited decision. In a 5:4 decision, the Supreme Court held that two banks that accepted fraudulent cheques procured by a dishonest employee were strictly liable in conversion to the employee, and therefore, could not establish the “fictitious or non-existing payee,” payee afford by subsection 20(5) of the Bills of Exchange Act.

One of Teva’s employees implemented a fraudulent cheque scheme whereby he prepared false cheque requisition forms for business entities with names that were similar or identical to those of Teva’s real customers. He then deposited 63 cheques made out to six payees for a total sum of $6 million. While four of the named payees on the cheques were actual Teva customers, the other two were made-up entities with names that were similar to real customers.

Organizations need to be aware of what is happening in their company. Employee cheque fraud is one of the ways in which a company loses its reputation. The company also financially goes under a certain amount of loss. The list above states some of the ways in which organizations can reduce employee frauds.

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