One industry expert says there are three red flags employers should look out for. BY HRM 01 Jun 2016 Share Pro tections against employee fraud are often only put in place after an organization has been burnt but prevention is better than cure, says one industry professional, who’s shared three major red flags to watch out for. Red flag 1 “When an employee does not take annual vacation time, it could indicate that the he or she does not want their responsibilities taken over by other employees who may detect fraudulent acts,” warns Bruce Roher, a partner in Fuller Landau’s advisory practice. “An employee who is over-protective of their work activities and processes may have something to hide,” he adds. Roher, who is also the leader of the firm’s valuations and forensic accounting practice, says there are two ways to prevent or detect this type of fraud. “Consider insisting that employees take annual vacations and have other employees perform their duties during their absence,” he suggests. Secondly, Roher encourages employers to implement a policy of rotating job responsibilities and cross-training employees to perform different functions. Red flag 2 “Another warning sign of employee fraud is a sudden or drastic change in lifestyle,” reveals Roher. “Management should be suspicious if an employee exhibits significant changes in lifestyle or if they appear to be living beyond their means,” he continues. “In many cases, fraud occurs because an employee is desperate or greedy for funds beyond the income earned from employment.” Red flag 3 A third red flag, according to Roher, is when a supplier insists on dealing with a specific employee. “Some purchasing frauds are committed by inflating supplier invoice amounts,” he explains. “A corrupt purchasing agent may be receiving a kickback payment from a supplier for goods purchased. The kickback will often be paid directly by the supplier to the employee.” Alternatively, the employee may establish a fictitious purchasing company which then submits invoices for payment, says Roher. According to the Toronto-based expert, there are multiple ways to prevent or detect this type of fraud. “Have an employee outside of the purchasing department check supplier invoice prices against documented price lists and quotes obtained,” he advises. Roher also encourages employers to review contracts that were issued without competitive bids, require two signatures on all cheques with careful scrutiny of invoices and supporting documentation, be suspicious of invoices that indicate a post office box as the address, and compare all addresses and telephone numbers recorded for employees to the master file of suppliers. “In today's uncertain economic climate, employees may be more motivated or tempted to perpetrate a fraud,” warns Roher. “One of the most important internal controls that can be easily implemented is a ‘segregation of duties,” he stresses. “For example, be sure to separate the purchasing/receiving functions from the invoicing/cash/payables and general ledger functions. “All bank accounts should be reconciled by someone other than those responsible for cash receipts and disbursements,” he adds. “Restricting access to records and databases depending on the employee's position and responsibilities is another effective internal control that can help prevent fraud.” More like this: Two-day strike set to continue Protests to be held over TFW program “We never get the big kudos nationally.” You've reached your limit - Register for free now for unlimited access To read the full story, just register for free now - GET STARTED HERE Already subscribed? Log in below LOGIN Remember me Forgot password?