Really all you need is a sloppy bid process and an associate outside at one of the bidding companies. This method requires two or more people- at least one inside and one outside the company.

Do you have a formal bid process?

Zero tolerance policies regarding bribes, bidrigging, and kickbacks should be inculcated in the company and those found guilty should be immediately sacked to set an example for others. Do you follow up on losing bids periodically with someone independent to ensure the bids were not altered? How “tight” are the price quotes?

If you see a particular vendor regularly winning bids by a small amount, you might want to examine the bid process closer. Employees giving your vendors a second
bite of the apple may also be indicative of problems. Do you have a ‘no tolerance’ prohibition on accepting outsider’s gifts, entertainment, etc.? Do you have employees periodically state in writing that they understand the policies and are in compliance with these policies?

Do you properly and regularly oversee, review, or audit the purchasing department? Are there employees obviously living beyond their means? Do you have a clerk moving around in a snazzy sedan? Do you do background checks and credit reports on all employees before they start working at your company? Although that may be a good practice, don’t assume employee screening is fail-safe. For legal reasons, many companies today will only confirm prior employment and dates worked. Less than 10% of employees caught stealing had prior convictions.

Purchasing Goods for Personal Use with Company Funds

Do you match all invoices to be paid with a report from your Receiving Department that the company has received the goods? Who approves your purchase orders? Who approves invoices to be

paid- Is it a separate person from one who signs the checks? Do you have a no tolerance policy regarding personal use of company funds?

Who makes the accounting entries to record the expenses? Does the account have a budget so that items not budgeted will trigger an analysis? Have you noticed any employees apparently living beyond their means? What is your policy on company credit cards? Consider having one employee maintain custody and be responsible for the company credit card if you only have one. If your business requires more than one credit card, have each employee needing one to have it issued in their name so accountability is established. It is possible to issue company credit cards either in the company name or in individual names. Know the advantages and disadvantages. Consider having employees use their own credit card and reimburse them through an expense report.

Conduct Periodic Audits

Review your accounts payable reports to see exactly what your company is buying, who you are paying, and where the goods/services are delivered. Depending on the nature of your business, drop shipments may need additional scrutiny. I can’t emphasize enough the importance of preparing detailed operating budgets and regularly reviewing budget variances. Depending on fraud severity and frequency, budget variance analysis is a great tool to detect and even help prevent employee fraud. If the employees know all variances are followed up quickly and regularly, they may not perpetrate the fraud they were considering. Even CEO’s are known to misappropriate their powers by using company credit cards to make personal purchases due to inadequate segregation of duties. Regardless of an employee’s position, it is important that all spending is reviewed by periodic audits by reputed CA’s. You need to set an appropriate zero tolerance tone at the top and document business purpose for all spending, not only for good internal control, but also to avoid IRS problems.

Read more about our due diligence services here. 

Amit Sen, a commercial pilot by training, has over 15 years experience in the space of corporate investigations, handling Copyright & Trademark infringement cases, Pre – employment verification Industrial Espionage investigations, Asset & Net – Worth assessment assignments and vendor / supplier verification cases, among others. Co-founder of Alliance One Detectives – which is the best anti fraud consulting firm in Mumbai. Amit has also successfully completed assignments in a wide range of sectors, including the machine tools industry, pharmaceutical industry, hospitality sector, specialized equipment (Oil & natural gas sector, aviation industry etc.), telecom industry & the IT & ITes sectors. These cases have all involved both offline and online investigations.