There are plenty of internal and external measures you can take to protect your company from wrong-doing — but odds are good you’re ignoring the best tool for the job.

Your company’s losing 7% of its annual revenues to fraudulent activity. That’s according to the Association of Certified Fraud Examiners’ (ACFE) “2008 Report to the Nation on Occupational Fraud & Abuse.” Apply that percentage to the total U.S. gross domestic product for 2008, and a projected $994 billion will be lost to thieves.

It’s not due to highly-skilled criminals in ski masks, either. In fact, if you want to see the next potential thief at your company, all you’ve got to do is glance at the next-door office or cubicle: 29% of fraud is committed by employees in the accounting department, while 18% is committed by upper management or executives.

Don’t think the clerk with the “Hang In There!” kitty poster has it in her? That might not be the best assumption: Only 7% of fraud perpetrators have had prior convictions, and only 12% have been previously terminated by an employer for fraud-related conduct.

Here are the top six ways employees can rip off a company (and some help telling whether it’s happening at yours):

1. Creating false invoices — 23.9% — If you’ve received a $10,000 invoice for an in-ground pool and aren‘t opening a company gym, it’s time to get suspicious (or at least a bathing suit).
2. Non-cash misappropriations — 16.3% — Next time someone asks if you can help them shove a Xerox machine into the back of their Corolla, make sure it didn’t use to live in your office.
3. Check tampering — 14.7% — Remember that odd feeling you had when Mary Wierzbowskivitch from A/P brought you three checks written to Wiezbowskivitch, Inc. for approval in one week? You should have listened to it.
4. Expense reimbursements — 13.2% — You should probably require receipts for any “business meetings” that took place at a bar at 4 in the morning.
5. Petty cash misappropriations — 12.6% — Keeping the petty cash in a piggy bank might be “cute,” but it’s just begging for mischief. It’s time for a padlock.
6. Payroll fraud — 9.3% — Got someone who claims they’ve worked more than 24 hours in a day? You might want to have a simple math lesson before showing them the door.

What’s the best way to stop fraud from hitting your company’s books? Internal controls and audits can only go so far. According to the report, almost half (46%) of occupational fraud was detected by tips from employees, customers, vendors and other sources.

What do you think? Is installing an anonymous tip line enough to catch — or deter — fraudsters who want to hit your company? Share your thoughts with us in the comments section below.

Your company goes the extra mile to make sure its business expense paperwork is bulletproof. Someone ought to clue in IRS.

For as thorough as IRS can be with most business’ tax records, you’d think it’d have a rock-solid reimbursement policy in place. But according to the latest report by the Government Accountability Office (GAO), it looks like IRS and other agencies couldn’t possibly have a worse program.

The review of over a dozen departments between 2005 and 2006 found that 41% of $14 billion in credit card purchases — whether they were legitimate or questionable — didn’t follow proper reimbursement procedure. And if that weren’t bad enough, for purchases that were over $2,500 — all of which are supposed to require several levels of authentication — 48% were improperly received.

We know what you’re thinking: That’s a whole mess of improper reimbursements. But it wasn’t just for employees milking gas receipts or upgrading to four-star hotels. Here’s a list of our favorite purchases that we can’t believe didn’t raise an eye or two a little sooner:

1. Army employees couldn’t properly account for 16 computer servers that totaled over $1.5 million. The servers were supposed to be both photographed and inventoried in the Army’s books, but GAO inspectors only found a picture of one of the servers.
2. Over a six-year period, a Department of Agriculture employee wrote 180 convenience checks to her live-in boyfriend. A whistleblower notified the GAO, and the cardholder was sentenced to 21 months in prison and must pay back $642,000.
3. A U.S. Postal worker charged $1,100 on his p-card to subscribe to pornographic and Internet dating sites. We know everyone deserves to find someone, but someone should’ve caught on sooner — the Internet charges were the only purchases made on the card for over a year.
4. Another Agriculture employee circumvented agency policy to purchase a brand-new Toyota Land Cruiser. He split the $80,000 purchase up by writing three convenience checks. Adding insult to injury: The convenience checks added up to an additional $1,000 in fees.
5. One NASA cardholder purchased two 60GB iPods at the request of his supervisor. The $800 might seem like small change compared to other purchases, but you can’t top the supervisor’s logic: The iPods were purchased to store only “official NASA information.” When GAO officials confiscated the devices, they were chock-full of personal photos, songs, videos — and engraved with the supervisor’s name and NASA logo.
6. A State Department cardholder purchased $360 worth of women’s lingerie at “Seduccion Boutique.” When asked to justify her purchases, the cardholder claimed the “gear” was used for jungle training during a drug enforcement program in Ecuador. Makes sense to us — as long as it was camoflauge print.

What’s the most absurd purchase you’ve ever seen, whether on a company card or T&E reimbursement form? Let us know in the comments section below.

Joseph Winstead, a postal worker in Washington, D.C., had to serve on a jury in an extended federal trial, so the government paid him his usual salary while he was away from work.

During the few days that the jury was excused, Winstead didn’t report to his normal duties as a mail processor yet continued to receive payment from the government.

So, when Winstead was excused from the jury before deliberations began, he decided to keep the information from his supervisor and remained on his “paid vacation” for the remainder of the trial.

In the end, Winstead played hooky for a total of 144 days, collecting nearly $40,000 in unearned wages from the government. (Actually, there was some work involved — he had to fabricate court paperwork to support his reimbursement claims for the 20-odd weeks he was at home.)

Ready for the part where the supervisor notices something amiss and Winstead gets in trouble?

It didn’t happen for years. The original trial was in 2003, but in 2006, Winstead was called for jury duty again. He decided to press his luck even further, considering how well it’d panned out for him previously.

That’s when the supervisor finally caught on. Winstead plead guilty in a fraud case — ironically, it was in the same federal courthouse where he was supposed to have served so much jury time. He’s likely to be given a prison sentence of 8 to 14 months.

When asked how such a glaring error could have gone unchecked, U.S. Postal Service spokesman Gerald McKiernan said the Service was “glad the fraud was detected. The system worked.”

So, fool USPS once, shame on you. Fool them twice … well, the shame’s still on Winstead, apparently.

Don’t use dumb numbers when you’re claiming bogus deductions.

Although indicted over a year ago for falsifying business expenses on his 2002 and 2003 corporate tax returns, Francis still provides Finance staffers with a great guide for spotting fishy business.

There are three types of numbers that should set off a red flag in your Accounting department:

1. Round numbers
2. Dollar amounts without decimals, and
3. Deductions that consist of the same number repeated.

Not content with pushing his luck once or twice, Francis used all three examples — and was quickly nabbed by IRS.

Among the multiple false insurance expenses he tried to claim, one was for $1,666,666,67 (note the lack of a decimal point), while another was for $333,333.33. The construction cost for one of his offices was pegged at $500,000.00, right on the nose.

You don’t have to be an accountant to realize that these funny-looking numbers are going to attract attention. Encourage your department to use the same kind of logic, especially when combing through expense reimbursements.

Does a meal cost exactly $50.00 or a plane trip add up to $666.66? It’s possible. But these are the kind of numbers that possible system-scammers might come up with. Taking the time to validate business expense receipts not only catches fraud before it finds its way onto the company’s books, but it also shows employees that reimbursement abuse — no matter how small it is — will be spotted.