Evaluate the family office's management structure and its managers' ability to delegate responsibilities, provide accurate reports and monitor day-to-day activities.  
Identify specific opportunities to increase expertise and controls through outsourced relationships.
  Establish effective protocols for such activities as wire transfers, maintenance of books and records, and timely financial reporting.
Increase professionalism by segregating staff duties and implementing thorough background checks for job candidates.
Document investment policy for the family office and create consistent standards for due diligence, investment decision-making, and performance monitoring and reporting.

The bottom-line benefit of a fraud-prevention audit is that it can help family offices treat their affairs and assets as a serious business in which all participants are held to clear, consistent standards.

Practical Methods For Preventing Fraud
In addition to conducting a fraud-prevention audit, family offices can discourage fraudulent activity by taking the following steps:

Vary the routine - Acts of fraud often arise from predictable daily routines and repetitive patterns. For example, some family offices regularly dispense cash through physical deliveries made by the same person, traveling the same routes at the same times of day or week. A professional service provider such as Wells Fargo should be hired to deliver large sums of cash. If this isn't feasible, vary the delivery routine, with different people assigned to the task to increase checks and balances.
Open the mail - One of the simplest tasks can be among the most effective: Just open the mail. Family members should open any mail addressed to them that contains financial documents such as bank and brokerage statements, capital letters, credit card bills and invoices. Even if a family member lacks the time to read or check these documents, opening the mail before it's distributed to the office staff can discourage fraud because perpetrators thrive on patterns of neglect.
Segregate duties - Segregating related responsibilities can be an effective anti-fraud measure. For example, the person who writes the checks should not be the same person who receives the bank statements and reconciles the bank accounts. The person who maintains the general ledger should not reconcile the bank accounts and write checks. The same person who enters the deposits and reconciles the accounts should not make bank deposits. Following these rules helps to eliminate opportunities for covering up theft with false records or destruction of documents.
Outsource the basics - Another time-tested practice is to outsource basic accounting and bookkeeping services, including check-writing. Engaging a professional service firm to maintain accounts and write checks can deter fraud, especially if the accounting firm has a fraud-prevention perspective.
Ensure that financial reports are complete and timely - Whether internal staff or an outside accountant prepares financial reports, he should follow consistent formats and schedules. The more time between events and reports, the more room fraud perpetrators have to maneuver. A complete set of financial reports should at least include an operating statement comparing budget versus actual results, and a statement of net worth including updated and reconciled asset values for alternative investments and brokerage accounts.
Establish procedures for check-signing - Dual check-signing authority is not necessary for paying day-to-day bills in small amounts, but it should be required for any expenditure over a certain amount, such as $10,000. Large checks should have two signers-one from an accounting firm and the other a designated family member or office manager.
Set protocols for wire transfers - Wire transfers are notorious vehicles for fraud, especially when money is wired from an internal account to an external bank. Unlike an internal transfer, there may be limited ability to recover a fraudulent external wire transfer. Before such a transfer is made, a protocol should be followed for having the family office's bank call back a designated individual, other than the person requesting the transfer, to verify approval. This protocol should be followed regardless of the wire transfer amount or external bank used.
Conduct consistent background checks - Personal background checks should be conducted before hiring anyone who will be involved in financial transactions. This policy should be enforced without fail, even when a job candidate is a "family friend" or comes highly recommended by an impeccable source, such as another family office.
Set clear, documented investment policies -Family offices use many types of structures  in vetting, selecting and monitoring investments. While flexibility has advantages, a few basic guidelines are also advisable:
Important investment decisions should be made by designated family members on behalf of the whole family. Fragmented investments made on behalf of specific members, to the exclusion of others, often lead to family friction and ultimately a dysfunctional family office.
Strong family offices hire a dedicated investment professional as chief investment officer to conduct due diligence and make recommendations. It is essential to review the track record, experience and background-including references, criminal record and credit check-of any CIO candidate. Make sure the CIO is producing original work and is not acting as a conduit for recommendations from other entities.
Strong family offices encourage investment transparency and communications. They have an investment policy statement that prohibits opaque or highly complex arrangements. They establish a committee of key members to fully debate and decide on specific recommendations made by the CIO. They demand full and consistent due diligence on every investment considered, especially "pet projects" of individual family members.
Offices can create checks and balances by outsourcing data aggregation, performance reporting and analysis, and tax reporting. An experienced accounting firm also can help to verify the accuracy and consistency of capital letters received from alternative investments, including capital contributions and withdrawals.

A Process For Increasing Protection And Peace Of Mind
Fraud can happen anywhere and to almost anyone, including sophisticated investors, operating companies and victims of identity theft. The Internet has enabled fraudulent acts to be committed against U.S. residents by criminals in Russia, China and other foreign jurisdictions, while an economic downturn has exposed new types of fraud, such as mortgage market manipulation.

Family offices are vulnerable to many types of fraud, ranging from elaborate swindles to petty theft. But costly and damaging acts can also fall outside the legal definition of fraud as "deliberate deception." They can be the result of mistakes that aren't detected, reported or corrected.

This is why we advocate a fraud-prevention audit as a process for changing the perspective of family offices and implementing practical methods that have consistently worked. You don't have to change your unique, defining values to treat your office as a serious business and increase its protection and peace of mind.

David Kaufman is a principal in the Rothstein Kass Family Office Group in New York City. He has been accepted as a certified fraud examiner by the Association of Certified Fraud Examiners.