Internal fraud is a serious problem. According to the Association of Certified Fraud Examiners, the aggregate fraud loss for all organizations is 6% of revenues. Generally, the implementation of preventive measures will more than pay for itself in saved costs.

Some of the “red flags” that may warrant further investigation include:

• Sudden lifestyle changes (e.g., an employee who purchases an expensive car or boat).
• Development of strong social relationships between employees in sensitive positions.
• Employees who consistently express an interest in the work of those for whom they are not responsible.
• Employees with unusual financial pressures (e.g., divorce).
• Employees who offer large gifts or gratuities.
• Vendors who consistently win contract bids.
• Lack of segregation of accounting duties.
• Employees who never take vacations.
• Employees entitled to large performance-based bonuses.

Companies concerned about fraud should consider these preventive measures:

• Establish a strong system of internal controls.
• Make employees aware that the company is aware of the potential for fraud and is actively looking for it.
• Set an honest tone at the top as an example for employees.
• Create a positive work environment so employees have no incentive to “get even.”
• Establish an employee hotline for anonymous reporting of suspicious activity.