Every business, both big and small, is at risk for fraud. It can start with a trustworthy employee that runs into financial trouble. While they are working, they pocket cash from the till, they pay themselves extra hours or pay their personal bills with company funds and no one sees it. They rationalize their actions by telling themselves that they deserve it or it is just a loan. This can continue for years.
It happens in our own neighborhood. Here are a few of the publicized ones:
- In 2009, an organization’s controller embezzled $2.6 million over eight years. An audit revealed he wrote checks on club accounts and deposited them into his personal accounts.
- In 2012, the former controller of a De Pere metal products manufacturer embezzling nearly $1.3 million from the company. He set up a phony company and wrote checks to that entity in a secret bank account he maintained. The records listed the checks as going to legitimate vendors. Since those vendors were not expecting a check, they did not complain when the check did not come. He also failed to pay $600,000 in taxes owed by the company.
- In 2015, a local family business discovered an employee not putting money in the register. The employee told investigators she had been stealing an average of $40 to $80 a day from the company for the last 16 to 18 months. They estimate she stole $12,800 to $28,800.
- According to the Association of Certified Fraud Examiners 2014 report, they estimate that 28.8% of businesses with less than 100 employees encounter fraud. The median loss is $154,000. In the end, only 14% of the businesses made a full recovery.
Now that you know, it may happen to your business, here’s what you can do to protect yourself:
- Be adequately insured. Discuss with your insurance agent. Consider 5% of your annual sales.
- Review your bank account transactions and or bank statement either online, sent to your email or the paper copy sent to your home. Do you recognize the name of the vendor that is being paid?
- Review customer credits and write offs. Determine why the accounts are being adjusted.
- Toss the signature stamp. Have someone who knows the business personally sign business checks and review the invoices that are being paid. Did the business actually receive this product or service?
- Each month review the bank reconciliation for items that have not cleared. Those items should be current and only show up for one month.
- Unexpectedly hand out paychecks and review annual wage reports or W2s for reasonableness. Did someone get an unauthorized raise?
- Pay attention to when staff is living a champagne lifestyle but earning a beer salary. Consider driving by your employee’s home. Are you paying them enough to live their current lifestyle?
- Require staff to take vacation. Then watch the mail, e-mail and other forms of correspondence for tax notices and other unusual items.
- Verify that the payroll taxes are paid. Consider using a payroll service that collects the taxes and pays them directly.
This is just a partial list. Those who commit fraud take much more time to do it than we do to prevent it. You work hard to grow your company, be sure to learn ways to protect.
By Mary Guldan-Lindstrom, CPA