In any company or organization, there are key positions that, due to the high degree of trust placed in them, handle cash, manage assets or safeguard the organization’s assets. These people have usually earned the trust of the company over time or because of their closeness to the organization. However, on some occasions, this trust is betrayed when employees divert funds, manipulate documents or abuse commercial relationships, causing serious economic damage.
While these frauds may go unnoticed for a time, it is possible to detect them before they have an irreversible impact. There are warning signs that allow suspicious behavior to be identified and corrective action to be taken in time.
I- Main positions at risk
Internal frauds tend to occur in areas where employees have direct access to funds or carry out financial transactions. Some of the most vulnerable posts include:
- Intermediaries between sales and collections.
- Those in charge of receiving cash payments and making deposits.
- Those responsible for settlements and payments to suppliers.
- Money managers with the authority to request cash on a regular basis.
II- Red flags to look out for
The following behaviors may indicate the presence of internal fraud:
- Delays in deposits: Employees who receive cash payments are slow to make deposits or make constant excuses to justify them.
- Payment manipulation: People in charge of paying suppliers or handling checks try to delay certain payments while strategically settling others.
- Misuse of the accounting system: They know the debt settlement deadlines and take advantage of this knowledge to hide irregularities.
- Money juggling: They temporarily provide appropriate company funds and replace them with older payments, generating a snowball effect.
- Accounting inconsistencies: Outstanding debts are detected without clear justification, which generates internal questioning.
- Constant excuses: They claim that customers or suppliers have not paid or been paid, to justify delays in the delivery of money.
- Inconsistency in justifications: When confronted, they admit to having taken money, but do not have sufficient assets or funds to compensate for the damage.
III- Legal consequences
Depending on the way in which the fraud has been committed, these acts may constitute property crimes as defined in the Penal Code of Guatemala, such as:
- Aggravated theft.
- Self-dealing.
- Appropriation and undue retention.
These crimes can be prosecuted before the corresponding authorities. However, it is essential to have sufficient evidence and proof to support the accusation.
Sometimes employers choose to sign civil documents such as promissory notes or acknowledgements of debt in an attempt to recover the money without generating a criminal record. However, in most cases, those responsible do not have assets in their name, which makes it difficult to enforce the debt. In addition, by signing these documents, they may raise prejudicial issues or distort the facts of the case. For this reason, it is advisable to consult with a specialized lawyer before making any decisions.
IV- Prevention and control strategies
To minimize the risk of internal fraud, it is advisable to implement control and supervision measures in the company. Some key actions include:
- Identification of risk positions: The most vulnerable positions within the company must be identified. Having clarity about which positions are high risk allows for the implementation of specific controls and reinforcement of supervision in these areas.
- Evaluation of the candidate’s background before hiring: Once a risk position has been identified and a candidate has been selected to fill it, it is essential to conduct a thorough review of their profile before formalizing their hiring. To do this, it is recommended to: verify employment references, review financial background, consult legal background, conduct a detailed interview, and even request information about next of kin and their financial situation.
- Detailed job descriptions: Define precisely the functions of each job and the appropriate procedures for carrying them out.
- Implementation of manuals and internal policies: Establish clear procedures for handling money and define who will oversee compliance.
- Cross-checks: Independently validate payments to and collections from customers and suppliers to prevent a single person from having absolute control over an account.
- Reduction in the use of physical documents: Implement digital systems to minimize the risk of altering accounting documents. If physical documents are used, they should be numbered and digitally verified. In the case of digital systems, implement security in passwords and access.
- Separation of functions: Prevent the same person from having full control of accounts receivable and payable.
- Periodic audits: Conduct internal controls and audits at short intervals to identify anomalies before the damage is significant.
- Continuous training: Provide ongoing training to employees and supervisors on the importance of ethics and compliance with internal policies.
- Internal reporting channels: Implement an anonymous reporting mechanism so that employees can report irregularities without fear of retaliation.
V- Conclusion
Internal fraud is a latent threat to any company. Timely detection and the implementation of prevention measures can make the difference between a minor loss and irreparable financial damage.
In our experience with cases brought before the Public Prosecutor’s Office, we have identified that the main obstacles to criminal prosecution include a lack of clarity in the description of risk positions, the absence of documents signed by employees, and the lack of well-structured control policies. Although it is possible to bring these cases to justice and obtain convictions or reparation agreements, the key is to have solid evidence that allows for the construction of an effective accusation.
If you need advice on the prevention or resolution of internal fraud in your company, do not hesitate to contact us.