The following article appeared in The Business Briefs newspaper, a division of BPDC.com, LLC. Please visit the Business Brief's website at www.BusinessBriefs.net. Republished with permission.
Read this: Avon Police Seminar Teaches How to Avoid Biz Theft!
Staff Report
The recent economic downturn has brought many Americans to their financial knees, and some, unfortunately, may be looking to their employers for economic opportunity by theft.
Avon Police Chief Brian Kozak knows this, so he intelligently brought in an expert who is a Certified Criminal Investigator and a Certified Fraud Examiner.
Doug Cash has worked for 27 years investigating white-collar crimes, along with Chief Kozak, when they were with the Mesa Police Department in Mesa, Arizona. Now, he can work for your business as a Manager of Forensic Accounting & Investigative Services for Eide Bailly, in Golden, Colorado. Cash's work takes him all over the country.
Cash defined forensic accounting as reconstructing a past event, using financial information at judicial proceedings. This is different than traditional accounting. Auditing is non-adversarial, Cash says. Fraud examination will be going to court!
"Fraud occurs everywhere," Cash said. "No organization is immune!"
"I've watched people steal every way you could think of," said Cash, to an audience of local business people, as well as local police officers.
"Prevention is cheaper than investigating it," he added. "You spend at the beginning, less than at the end."
Cash cited a survey that indicates that a whopping 75 percent of businesses are victims of fraud.
"The number one reason for fraud," says Cash, "is poor, circumvented or nonexistent internal controls."
Banks, homeowners associations, etc., without controls, provide an opportunity to steal from them.
Cash says that—are you sitting down—$994 billion, with a "B," is lost to fraud annually.
ANNUALLY! Will you be the next victim?
Why People Steal
At the top of the list of reasons people steal from their employers is, of course, financial pressures. These pressures can be caused by a variety of issues, including overuse of alcohol, drugs or personal problems at home.
Cash says people start looking for opportunities, then they start rationalizing that, "it's just a loan—I'll pay it back!" He says there is nothing business owners can do about pressure or rationalizations. But, they can take away opportunities to be stolen from.
When asked, 'Would you steal from your employer?' Forty percent of respondents said no, 30 percent said yes, and 30 percent said they might. "Sixty percent on any given day could steal from you!"
So, how are they doing it?
One way employees steal from employers is by taking assets before they are recorded on the books, or by unrecorded sales, or by taking inventory off the dock.
Another example Cash gave is where a staff accountant skimmed from deposits every day.
Or, a strip club owner found their staff's modus operandi was to conduct unrecorded sales on drinks. The facilitation was that no controls were in effect, and the result improved $10,000 more in sales after controls were placed into effect the week before.
Other examples include bookkeepers opening checking accounts with similar names to vendors. APS became a vendor, instead of Albert Paul Smith, so when the checks were deposited, no one knew the money was going to a person.
Cash had no shortage of examples:
- Fictitious vendors
- Over payment
- Pay and return
- Personal purchases
- Setup shell companies, submit fake invoices
- Pay ghost employees
- Paying unauthorized overtime
- Theft of time, etc.
Cash cited a superintendent perpetrator example of keeping an employee on the payroll after they were terminated, resulting in $11,000 in payments over a three-month period.
Other examples include:
- Unauthorized expenses
- Inflated expenses
- Fictitious receipts
- False letterhead
- False voids
- No receipts to customers
Hiring the right people!
Hiring the wrong people can result in loss of productivity, loss of man hours, lawsuits and punitive damages. Cash says the solution is background checks, including criminal checks for state and county, credit checks, and sex offender registry checks.
He also advises never to accuse your employees with potentially false allegations that can get you sued, if you are wrong. Instead, hire a forensic accountant who can better find out if something was stolen by a suspected employee. True and honest employees want to keep their job for years.
A forensic accountant can:
- Create a ghost copy of their computer.
- Find out the truth only the owner knows.
- Resolve allegations of fraud.
Without this, the business could go bankrupt!
Getting divorced? Hire a forensic accountant!
Maybe the husband took $200,000 out of a business without the wife knowing, suggests Cash. A forensic accountant is not your everyday accountant, he says.
A forensic accountant:
- Can act as an expert witness in divorce court
- Is used to asking "why?"
- Is independent.
What do they cost?
So, a business owner might say that they can't afford to pay for theft controls. Cash says they can't afford not to implement them. But, if a business owner hasn't implemented them, and is getting ripped off, you can spend approximately $5,000 to have Eide Bailly's Forensic Accounting & Investigative Services division come in for three days and try to get to the bottom of what is really going on.
"Isn't it worth $5,000 to know if you are getting ripped off?" he asks. Cash says Eide Bailly's Forensic Accounting Department has a staff of 14 people, many that are trained in data entry. He says he primarily does the vast majority of interviewing your employees, and can usually tell if an employee is lying.
He also said that his company does background checks for fees starting at only $40.
Failing to do a potential employee background check can get you sued, for example, if the employee turns out to be a registered sex offender and re-offends while on the job, and the company failed to do a background check.
What's $40, compared to a lawsuit down the road, Cash asks?
One of the keys to his company's success is that when they ask employees questions, they don't have to inform them of Miranda rights, since they are not part of law enforcement.
Eide Bailly says that an average of 7 percent of company annual revenues is lost to fraud? Will your company be one of them?
Eide Bailly believes that the average fraud is not detected for up to 24 months. When it comes to white-collar crime, Doug Cash says, "Colorado needs more laws on the books" to combat it.
For a fraud assessment at your company, Doug Cash can be reached at DCash@EideBailly.com or 303.459.6748 in Golden, Colorado.
