We have all seen headlines in the newspapers and reports on TV of companies losing millions and in some cases billions of dollars due to the treasurer running off with a ton of the company’s money, a trader making unauthorized transactions, tellers crediting customer’s deposits to someone else, some hacker breaking into an account and so many other cases of fraud.

There are many things that a company can do to avoid being a victim of fraud, a lot of which are just common sense. The most basic one is screening your applicants before they actually begin working in the company. It is quite common that an officer will get on the back of the human resources department for a warm body to fill up a vacancy leading to short cuts that bypass the normal procedures. Of course, the more sensitive the position, the more thorough the background check should be. It would be wise to check on the family background, credit history, employment history and references of the applicant.

People may argue that having a good family background is unimportant since it is the individual that you are looking at. While it is true that someone with an excellent family background may still be a rotten apple, it is a question of the odds. Someone who is raised well will most likely have a proper education, look after the reputation of their parents and associate themselves with people of similar standing. People with a bad credit history indicates a recurring problem with their finances, making them more prone to the temptation of acquiring “easy” money. Someone who frequently hops from one job to another is also a problem indicator. It is therefore important to talk to the former supervisors of the applicant and find out more about the individual.

Aside from doing a proper screening, the company should institutionalize policies that will enhance control and reduce the opportunity for fraud. Among the more popular ones are dual signatories, separate maker and authorizer function, use of custodians, password controls, limiting access, and CCTV cameras.

Dual signatories for banking transactions and documents dealing with the company’s assets and liabilities ensures that at least two people will have to be involved in approving payments, writing checks, buying and selling of corporate assets, making loans and so on. Having a separate maker and authorizer function means that the maker will have to be the one to prepare the documents involved in a transaction while the authorizer reviews and authorizes it. Again, this requires the active participation of two people for a transaction to proceed.

Using custodians for numbered forms, checks and negotiable instruments separates the one initiating and approving the transaction from the one keeping the execution documents thereby adding another layer of protection, providing for better control and an audit trail. The use of passwords in automated systems, accounting and inventory, internet- based programs and other computer- based activity prevents unauthorized access. It can track the location, limit the access, and keep a log of the activities of the user. Limiting access restricts the availability of certain portions of the facility to authorized personnel only and this can be done by the use of biometrics, cards, keys, passwords and of course security personnel.

CCTV cameras are a very useful device in that they see and record everything, and wherever you are in the world, as long as you have internet access, you can see what your cameras are seeing. They have become so inexpensive that the cost is no longer an issue in their use as a deterrent. Of course the cameras have to be located properly and the type and quality of the camera must suit the location and need for the device.

Presence of mind is required not only from internal fraud but also from external sources who are scam artists. They will try to gain access to someone within your organization who controls cash, negotiable instruments, valuable physical assets and other properties of the company. They will produce official looking documents and IDs and introduce themselves as someone who is supposed to inspect your books or premises, a good friend of the chairman, a visitor of the president or a government representative from the BIR, SSS, DOLE or Mayor. Sometimes in very large organizations, these people pretend to be part of the organization doing an audit. In these cases, do not give in to the urgency and boldness of the scam artist, do your own checking by calling your own contacts, not the ones they provide you. When in doubt do not entertain them and call for the police.

Taking the necessary precautions and instituting the appropriate controls may cost some time and money but it will be well worth it to prevent your company from being a victim of fraud.

(Comments may be sent to chua.george@yahoo.com)