Ernie Rossi, Audit Partner at Sensiba San Filippo LLP, a leading Silicon Valley CPA and Consulting firm. Sensiba San Filippo LLPL works with many small to mid-size businesses to implement policies and prevent such scenarios.
Below are Ernie’s top tips for instituting procedures to prevent internal fraud:
1. Leverage a third party to review the business and uncover potential problems through an assessment of internal controls. This will help identify the areas of biggest risk — the low-hanging fruit.
2. Implement controls. For example, separation of duties of employees, to shore up vulnerabilities uncovered in the assessment. Next, periodic reviews by internal managers and external assessors will help to keep controls from slipping out of practice.
3. Educate employees about the purpose of the controls. Increased awareness, along with the knowledge that internal controls are a priority, will serve as a strong deterrent. Communicate that internal controls will ultimately protect employees if and when a fraud is committed by allowing them to quickly be eliminated from suspicion.
4. Do not rely on financial audits to detect fraud instead of a good internal control system. Audits only test a sample out of thousands of transactions, which are selected at random. So, the audit may catch an error, but it is no guarantee that the error is going to be a result of the fraud. Audits should not be thought of as a substitute for internal controls.
5. Listen for key phrases or changes to the business. For example, the phrase, ‘We’re having cash flow problems,’ may indicate a control issue.
6. Look for warning signs with employees. Someone living beyond their means. Always distracted or talking about money problems, suddenly appearing with new big ticket items, etc.
About Ernest C. Rossi, Audit Partner-in-Charge
Ernie is Audit Partner-in-Charge with Sensiba San Filippo LLP, bringing nearly twenty years of experience in providing financial and compliance audit services to clients in a variety of industries, including technology, professional services, manufacturing and transportation. Ernie co-leads the Firm’s Corporate Compliance Group, with specific responsibility for the firm’s ERISA plan audit practice where he works with both privately-held and publicly-traded companies to ensure that their 401(k) and other employee benefit plan audits are executed smoothly, efficiently, and on a timely basis.