When your business experiences turbulent growth, be aware that new opportunities for fraud may open up. Smart managers make fraud prevention and detection part of an overall plan for expansion. When a company opens new offices in various locations, an over-worked staff may look for shortcuts just to keep up.

The complexities of growth make it difficult to quickly detect fraud. A situation in which busy personnel are racing to accommodate growth can result in costly mistakes. Sloppiness and lack of oversight eventually produce an environment that is ripe for unethical individuals to embezzle.

Fraud in the wake of aggressive growth is a real concern. Managers orchestrating growth should be aware that opening new facilities, merger and acquisition activity or expanding into new lines of business should trigger a fresh look at fraud prevention.

A critical component of fraud deterrence is a strong internal control system that is continuously updated and monitored. Public companies are required by Sarbanes-Oxley to maintain internal control standards. However, many private companies are adopting similar standards to give their investors greater confidence.

Upper management's attitude is key. The management must formalize a code of conduct. An open-door policy and a spirit of cooperation and teamwork are crucial. Management is under pressure, especially in times of turbulent growth, to demonstrate and insist upon high moral standards.

Fraud prevention is just as important as signing a lease on a new building or hiring top executives. If you wait until the dust settles from a merger before establishing a fraud program, you may later uncover problems that cost more than money. The embarrassment of being caught not minding the store can erode investor and public confidence. That kind of negative publicity can affect the future of your firm.

When internal controls grow lax, even temporarily, you leave your business susceptible to fraudulent transfers of money or unexplained loss of inventory. We are often called in after the fact to perform forensic investigations. We find evidence of personnel writing checks for their own benefit or committing financial statement fraud to secure a big bonus. This type of fraud, as well as other crimes, may be avoided through preventative measures.

Jeffrey Sumpter is a Director of Litigation Support & Forensic Services in the Stonefield Josephson Valuation, Litigation & Forensic Group. For additional information on developing a fraud deterrence program, contact Jeffrey Sumpter at 310-432-7454 or jsumpter@sjaccounting.com.

 
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