The Fraud Examiner

How to Prevent Fraud in Decentralized Organizations
 

Valerie Abramchuk, CPA

Manager - Fraud Risk and Control, AmeriGas Propane, Inc.                     

                

We all know fraud prevention and detection can be a monumental task. Besides the difficulties of protecting assets — such as cash, fixed assets and inventories — we also need to be aware of other risks, like fraudulent financial reporting, theft of time and vendor kickbacks. What can make implementing and enforcing effective controls even more challenging is when the company’s assets, reporting, employees and purchasing exist in a decentralized setting.

 

Imagine you are the fraud manager for a company with strong internal controls. At the corporate office, there is the appropriate segregation of duties over custody, authorization and recordkeeping. There are various levels of approvals, and required backup documentation is created and retained for all transactions. Staff is overseen in their duties, whether they are entering timecard data or booking a journal entry. With the robust review process in place, supervisors are able to consistently improve compliance and control infractions are quickly recognized. This is the ideal situation for an anti-fraud professional.

 

Unfortunately, things aren’t always ideal — enter the decentralized model. Although all financial reporting is still performed at the central corporate office, all of the information gathered for the financial statements is created and provided by thousands of employees in hundreds of locations. Internal controls exist to protect assets. However, the implementation of those controls is subject to how effectively hundreds of managers carry out their duties. Those same managers are also responsible for employee oversight, including hiring and terminations and for choosing vendors to provide goods and services that cannot be obtained through a national vendor. The task of enforcing compliance with company policies and procedures is dispersed to many. Hopefully, you are getting the picture — the decentralized model lends itself to control weaknesses amplified by physical distance.      

 


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