Tag Archives | internal control

Dealing with Employee Fraud

employee fraudRecently, I was visiting with a potential client who had been the victim of fraud.  Talking with him brought back unpleasant memories of the first time I discovered that one of my client’s employees had committed fraud against the company.  Despite the fact that it happened a long time ago, all of the emotions associated with the violation came flooding back.

Dealing with Employee Fraud

Betrayal

The first, and perhaps strongest, emotion is betrayal.  Anyone who has been a victim of fraud feels violated.  It’s not unlike finding out that your spouse or significant other has had a relationship with another person.  Most likely, the violator’s motive wasn’t personal, but it’s difficult not to take such treachery personally.

Shock

The next emotion I remember feeling was shock.  How could this have happened?  How could we have been so blind?  It’s hard to believe that this person you trusted could steal from you without you knowing it.  You feel duped and, as a result, may question your ability to judge a person’s character.

Anger

Once the hurt feelings and shock have passed, you will be angry. You may seek retribution. Unfortunately, it is often difficult to get your money back and district attorneys are reluctant to prosecute such cases unless there are large sums involved.  Even if they go forward with prosecution or seek compensation, any recovery is often less than the amount stolen.

Despite this fact, it’s important to pursue the matter regardless of the sum. It’s not just about you getting your money back.  It’s also about ensuring that this person doesn’t have the opportunity to violate someone else in the future.  Often, this is not the first time the person has committed fraud.  Even if you recover less than your losses, the paper trail created by the prosecution will be a red flag to anyone who runs a criminal background check on the individual in the future.

Eventually, most people move on past the emotions and learn to trust again.  Most likely, they won’t trust to the same extent, though.  The painful lesson learned is trust, but verify.

One of the positive outcomes of such an experience is tightened internal controls.  Because of this, the company can come out stronger in the end for having survived the theft.

How do you know if employee fraud is happening in your company? Check out our free Internal Analysis whitepaper to create the roadmap for your company’s success!

Dealing with Employee Fraud
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Dealing with Employee Fraud

Check out our article:  7 Warning Signs of Fraud

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Sarbanes Oxley Act of 2002

See Also:
Securities Act of 1933
Securities Exchange Act of 1934
Audit Committee
Auditor
American Institute of Certified Public Accountants – AICPA

Sarbanes Oxley Act of 2002

The Sarbanes Oxley Act of 2002 or SOX for short is further regulation of the secondary market by requiring further internal controls within companies and extensive audit practices. The Sarbanes Oxley Act 2002 resulted from several accounting scandals that plagued the early 2000s such as Enron, Tyco, Worldcom, and several others.

Sarbanes Oxley Act of 2002 Explained

Bi-partisan legislation by Paul Sarbanes (D-MD) and Michael Oxley (R-OH) created the Sarbanes-Oxley Act. The creation of SOX regulation was a result of investors mistrust in the market place after several scandals were revealed in the market. Consider Sarbanes Oxley an extension of the Securities Exchange Act of 1934. Sarbanes-Oxley is most known for the creation of the PCAOB, an extension of the SEC, who regulate accounting firms who audit companies. They also emphasize internal controls within businesses. These internal controls and audits involved regulation over not just employees, but both board members and management who neglected their duties. Separation of duties became a big factor in the regulation and rotation of tasks. As a result, no one employee would be able to keep a scandal going for very long.

After, SOX was put into place there became a concern by some after several years that it was too regulatory. And the costs associated with the new regulations were too high to maintain. It has thus been argued that there needs to be a softened form of Sarbanes Oxley as to prevent movement away from U.S. markets as well as to reduce a barrier to entry formed from entering the market. However, the US recently revisited the law in June 2010, and it is still fully operative.

If you want to overcome obstacles and prepare how your company is going to react to external factors, then download your free External Analysis whitepaper.

sarbanes oxley act of 2002

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sarbanes oxley act of 2002

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