Pub. 10 2015-2016 Issue 2

Call KBS (785) 228- 0000 to discuss this article and other loss prevention topics or products to help protect your bottom line. twitter.com/kbsforbanks linkedin.com/company/kbsforbanks Subscribe at http://tinyurl.com/kbssubscribe Small companies may be more vulnerable than large ones as they often have less structured controls in place. Small business owners often know their employees personally and feel that they are trustworthy, or they may simply not have the resources to devote to internal controls. At the same time, small companies have the advantage of manage- ment seeing a much larger percentage of transactions. Break the Triangle! The easiest way to discourage occupational fraud is to recognize and eliminate the “opportunity” factor. First, imple- ment strong internal controls. You’ve heard it before, but segregation of duties is essential. A key layer of defense is strong dual controls over account reconciliations and ongoing reviews of common methods for transferring funds outside of your bank. The second layer of defense is setting a consistent tone of integrity and professional skepticism throughout your bank. Since no compliance program is foolproof, keep in mind that tips from employees or outside parties often uncover cases of occupational fraud. According to the 2014 ACFE Global Fraud Study, over 40% of all occupational fraud is detected through tips – more than twice the rate of any other detection method. Furthermore, when organizations with tip hotlines experience fraud, it is generally 41% less costly and the fraud is detected 50% more quickly.* A culture of openness and professional skepticism will help enable bank employees to feel comfortable providing such information to management. The other two factors, financial pressure and rationalization, are not usually under your control, but do not ignore them if you recognize them. Employees need to know that management is aware and ready to enforce compliance standards. While the banking industry has one of the highest occurrence rates of occupational fraud, this does not mean you need to view your employees with distrust. Simply stay aware of what is going on, communicate acceptable ethical standards, and do your best to break the triangle. By taking these steps, you help insulate yourself from the financial (and emotional) loss of occupational fraud. Stay tuned for tips on how to implement specific controls against fraud! For over a century, KBS has been helping community banks in preventing fraud and providing insurance coverage when fraud does occur. Feel free to contact us regarding your risk management questions. *2014 Report to the Nations on Occupational Fraud and Abuse. Copyright 2014 by the Association of Certified Fraud Examiners, Inc. Connect with us on social media: Gain access to enhanced KBS content: 40 % of all occupational fraud is detected through tips.