What would you think is the most likely way that a fraud is detected?
Internal audit?
No.
External audit?
No.
One fact
Forty-two percent of frauds are discovered by a tip.
Internal audits are the means to catch 14% of frauds. External audits catch a mere 3% of frauds.
Frauds are ten times more likely to be discovered by a tip than by an external audit.
That single fact, 42% of frauds discovered by tips, is a strong argument to set up an anonymous fraud tip hotline.
That data is provided by The Association of Certified Fraud Examiners in their 2014 Report to the Nations on Occupational Fraud and Abuse based on their survey of over 1,400 frauds reported to the organization.
First story
For a story of how an easy reporting system can work with options for anonymity if desired, check out Here’s My Number and a Dime… by Rumbi Bwerinofa.
She explains that oftentimes a person will see something wrong (fraud inside your organization or against it from the outside) and want to report it. The well-justified fear of reprisals means many people won’t speak up unless they can do so anonymously.
She also points out that the reporting mechanism needs to be well understood with the contact point (800 number, P.O. box, e-mail address) well publicized. At the moment someone has the courage to speak up, don’t make them search far and near for that phone number they didn’t write down during the training event.
She shares her experience with an abusive taxi driver.
In New York there is a well-known reporting system for reporting waste, fraud, and abuse. It is the 311 system. The trained operators can take a report and give a choice of anonymous or on-the-record reporting. They get the report to the right place for action.
Staff in your organization may speak up, but need to know that they can remain unknown and something will be done about it.
Anonymous tip lines with trained operators are the very inexpensive solution.
Check out the article. It is a good read.
Second story
A number of years ago, my wife and I went to a weekend marriage conference from Family Life. (As an aside, you take your car to the shop for both tune-ups and major repairs. Routine maintenance oftentimes prevents major overhauls. Same thing with your marriage. You can go to conferences, read books, or get counseling for either tune-ups or major overhauls. We heartily recommend marriage tune-ups to avoid major marriage repairs.)
The conference is designed to give some time alone, so couples are on their own for lunch and Saturday’s date night.
For lunch, we walked across the street to the mall’s food court. We ate at one of the fast-food Chinese restaurants. You know the type, many selections of yummy food ordered in 1 entre or 2 entre combos. (It wasn’t the big name you might think.)
The vast majority of sales are going to be 1 or 2 entrees, with or with a soda, for one or two people.
Can you see what’s wrong with this picture?
When we stepped up to the counter, I noticed the cash register was open. We gave our order to the smiling cashier. After gathering our food, she gave us a price. I handed her a 20 and she counted out the change. We picked up our food and moved to a table.
Did you see what was missing?
She didn’t ring up the sale.
She had memorized the prices for the common sales (1/2 combo, 0/1/2 drinks, 1/2 people) and could give an amount off the cuff including tax. She carefully counted out change and put the $20 in the drawer. She did not close the drawer.
The only thing missing was recording the sale on the register, so there was no accountability for the sale. When counting out the drawer at the end of the day, she deposited the amount of sales recorded on the register and pocketed the rest.
Great classes all day. We had a pleasant date night Saturday. On Sunday, we again went to the food court for lunch. Choose the same restaurant. The same two people were working and the cash drawer was again open when we stepped up.
Exact same routine except the male cook served us. He also provided a price without use of the register, accepted our money, handed back the change, and put away the $20 without closing the drawer.
My conclusion? Both the cashier and cook were in on the scheme to keep lots of sales off the register and steal the money.
No way to report the theft
I wanted to report the crooks. That is so blatant and so wrong.
I could not do so.
I searched the ‘net and the company’s website for a long time. There was no way to call or email the company to report two of their staff who were stealing that store blind. A dozen sales a day for two days could be somewhere around $1,500 a month.
I would have gladly reported the thieves, but was not able to find any way to do so. Don’t recall that there was even a mailing address for the corporate office.
Lesson learned? You need to have some way for people who want to report fraud to get in touch with you. The contact point should be very obvious to someone who is looking for it.
This applies to charities
Although the two stories are not in the context of a charity, the same points apply. Your organization is vulnerable to fraud and abuse. You are not exempt just because your staff buy in to your mission.
There are people who might want to report, if they could do so anonymously.
Please think about setting up a fraud hotline. That reporting tool will dramatically increase your chance of finding fraud. Remember that 42% stat.
That is, by far, the most likely way you could find fraud.
There is also a huge deterrent value. A tip line is fraud prevention. As Ms. Bwerinofa says:
The knowledge that there is an easy way for fraud to be reported may also serve as a deterrent to those contemplating committing fraud.
If you know someone might report you, that might close the door on the opportunity to commit fraud.
Please think about it.