Tag: Fraud

Posted on Feb 18, 2016

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There are many types of fraud committed against businesses — from workers’ compensation scams to complex corporate swindles — but one of the most common types is simply employee theft.

This can occur when employees take money from a cash register, forge names or change amounts on company checks, engage in creative bookkeeping a number of other schemes.

No matter how profitable your company is, you can be vulnerable unless you thwart these attempts. While there’s no single deterrent to internal fraud, you can take some relatively simple steps to help detect and prevent it:

THE FRAUD TRIANGLE

Certain situations drive some people to steal. It’s sometimes called the “Fraud Triangle” and it generally contains three elements:

  1. This is often financial stress with the individual unable to share the problem and seeing no effective, legal way out. It may be combined with job dissatisfaction, drug or alcohol abuse, or failure to meet company requirements.
  2. If employees perceive there is a chance to steal and they are under pressure, they may try it, particularly if they think they can get away with it.
  3. These employees believe stealing isn’t really wrong. Excuses range from: “It’s a loan.” to “I’m not taking anything that will be missed,” or “everybody else does it.”

A FEW WARNING SIGNS

Lifestyle changes. Suddenly, an employee has a new, big home or an expensive car.

Unusual behavior. Nice people may become belligerent and vice versa.

Reluctance to delegate. Employees who are stealing often work extra hours rather than delegate responsibility out of fear of discovery.

10 SMART INTERNAL CONTROLS

  1. Enforce mandatory vacations. If employees don’t take time off that is due to them, a red flag should be raised. Someone may not want to go on vacation because he or she can more easily cover their tracks while on the job.
  2. Consider having payroll checks be signed personally. This can take some time and is impractical for large companies, but it allows management a chance to give payroll a quick review.
  3. Use a dedicated payroll bank account and deposit the correct amount for every pay period. This can help your company immediately recognize any changed amounts. However, this also requires close attention to details like overtime and withholding so that the account doesn’t fall below the bank’s minimum balances due to legitimate changes in payroll.
  4. Use a “for deposit only” stamp on all incoming checks, which can prevent employees from cashing them personally. Don’t rely solely on this, however. A bank teller still might allow the check to be cashed. Consider accepting electronic payments to prevent employees from cashing incoming checks.
  5. Monitor receivables and payables. Investigate discrepancies.
  6. Do not let the same person who handles revenue or opens the mail also handle disbursements.
  7. Reconcile your company’s accounts at least monthly, examine anything that doesn’t balance or otherwise looks wrong.
  8. Compare checks to the company cash disbursements journal. Make certain that payees on checks match payees shown in the journal. Confirm that the names and amounts on checks are consistent and believable with your company’s practice.
  9. Secure your offices whenever you leave. Periodically change the locks on doors and file cabinets. Change computer passwords regularly, especially after someone leaves the company on bad terms.
  10. When feasible, rotate the duties of those who handle money, record sales or disbursements, and otherwise have opportunities to steal from the company. Be cautious of people working in teams that could potentially defraud the business.

The bottom line is to protect your bottom line. These are just some of the steps your company can take to safeguard its assets. Talk to one of our team members today to discover how Go and Grow can help protect your company against employee fraud and theft.

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Posted on May 22, 2015

A Day in the Life of a CPA

 

I anxiously arrived at Deloitte for my first day of employment and met with my assigned mentor. He showed me the supply room and introduced me to some of the team members. I was so excited. The firm administrator, who everyone seemed to fear, delivered my business cards and gave me my first assignment. Throughout the interview process I knew I would be working on one of the largest engagements in the Tulsa office, however, it would not be starting for a couple of weeks so I got assigned to a special project working in the consulting group. I met with the consultant, Robert, to get started, and he outlined the project goals and indicated we would be working with a client located in Muskogee, Oklahoma.

The next morning we met at his house and drove to the client location. It was in January and very cold. During the 30 minute drive, Robert explained that the owner of the privately owned company, which manufactured and distributed toilet paper, was trying to understand why the manufacturing waste variance was at 27% when the industry standard was only 4%. Since we provided audit and tax services to the client, they decided to engage us to review the production records to determine the cause of the variance. Robert was certain it had to do with irregularities within upper management. Robert explained as we arrived that we were going to be disguised as the audit team starting the annual audit.

As we pulled up to the client, Robert explained things may get intense but not to worry if things get out of control. As he slid his Glock from under the seat, he reassured me that he would keep us safe if the situation became confrontational. I tried to recall from my college and CPA classes if this was something a CPA would normally encounter. I was very worried -but I was in Muskogee, Oklahoma with no car to run back to the office, so I decided to trust that it was going to be ok.

The receptionist led us to the conference room with the President and all the other officers of the client. They introduced us to our key contacts and we got started immediately. Our objective was simple: recreate ending inventory from production records. The process was tedious and the working conditions were difficult. It was 1992 and everyone that worked for the client smoked heavily so it felt like we were working in an ashtray.

As time progressed, the President and other officers became aware of our focus on inventory, so we told him that we rotated our testing and this was the year for us to focus on inventory. It was getting tense, but at the same time- we were making progress. The production manager fed us everything we needed to calculate what ending inventory should be based on production and shipments. Finally, we had the results.

We met with the owner and controller of the client to discuss our conclusions. It was obvious that inventory was being fraudulently removed from the warehouse. The owner wanted us to provide an opinion in writing that someone was stealing the inventory. We told him that under our CPA guidelines this was not possible. We could only give him the data we accumulated and he would have to handle it from there. He was furious and said he was not going to pay us and that he planned to contact his attorney to review his options of suing our firm for malpractice.

The next day we arrived at the client to gather our work papers and clear the field. It had been an exhausting 3 weeks and our efforts seemed to only make matters worse. As we were gathering our things, Robert asked me to fax his expense report to the office. The main fax machine was not working, so I asked the receptionist if there was another fax. She offered me the President’s fax machine and unlocked his office to allow me in to use it. I picked up a sheet that had been left on the President’s fax machine. It was a purchase order for toilet paper from a convenience store addressed to another company. I quickly realized the issues we had uncovered in ending inventory were directly connected to the President. He had been selling the inventory made by our client in the name of another company. I took it to Robert and by the next day they arrested the President. Robert and I went from goats to heroes, and the client was satisfied.

CPAs are called upon every day to help solve complex problems business owners face. We take both conventional and unconventional approaches to help business owners navigate seen and unforeseen challenges. We add value because our involvement provides our clients credibility in the financial markets.

I am now a partner at Cornwell Jackson with 23 years of experience. As CPAs and advisors, we work relentlessly to help our clients by going above and beyond to exceed our client’s expectations. Please contact us if you need a CPA that will provide solutions that help your business grow and prosper.

Blog post written by: Scott Bates, Audit Partner

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Posted on Mar 11, 2015

How to Get away with Fraud HeaderIn today’s entertainment culture, the hot topic is how to get away with something. Plot lines in shows like How to Get Away with Murder, Scandal, Revenge, and many others are surrounded by this idea. But have you ever tossed around the thought of someone committing fraud in your business? It happens all too often, and most of the time it can be easily prevented. I’ve written a short blurb called How to Commit Fraud and Get Away with It to prove just how easy it would be for employees to pull a fast one if your business does not have a checks and balances system in place to prevent it.

How to Commit Accounting Fraud and Get Away with It

What if I could tell you there is a way to commit fraud and steal from your employer and not get caught?  I’m serious; I can teach you. Think about it, you could have new cars, expensive clothes, and all those things you have always dreamed about. Companies large and small experience fraud everywhere, every day and most people don’t get caught.

So, let’s get started. Because larger companies have more corporate governance, its best to find a position with a smaller company. These work better because the owner will be so busy with building the business, the last thing he wants to do is manage a back office.

It’s really important to impress early because that gives you the pinstripes which help you shine and give the owner reassurance he does not need to get involved. He’ll hand you the checkbook, some keys, and give you instructions to get the mail every day. They key to get started is make sure he does not open the bank statements. Chances are that he probably doesn’t look at them on-line either. In order to make sure, you need to start small by forging a check for $200 to yourself out of sequence. Don’t be worried about the bank verifying signatures because they typically don’t do it, and with the handy new technologies you can just use an electronic signature.  If the owner notices you can just say it was for petty cash. If he does not, then you know you are in the clear to pillage the company’s bank account and line your pocket book!

Cornwell Jackson’s recommendations to prevent fraud from happening in your business:

  1. Be diligent in checking references.  If checking references would jeopardize the candidate’s current position, insist on checking with a previous employer.
  2. Keep a close eye on company bank records. The key for owners to catch forgery is to open their bank statements and review for unusual signatures, checks out of sequence, and investigate any vendors that appear improper.
  3. Secure check stock and financial information in a safe place. Always keep company checks locked away to reduce the opportunity for temptation.
  4. Maintain an active role in payment authorization. Working with an online software platform, like Bill.com, that requires authorization from the manager greatly reduces the probability for things to slip by unnoticed.
  5. Include a Trusted Advisor in all Financial Activity. Hiring an outside consultant, like Go and Grow, to close the books monthly and handle financial reporting is a great way to set up a system of quality controls to prevent against fraud in your business.

Talk to one of our Business Services Specialists to discover any fraud risks in your company. We’ll help you learn how to protect your business from fraud.

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