Monday, January 9, 2017

4 Steps to Outsmart Financial Fraudsters

At the start of a new year, the last thing we want to imagine is bad things happening to nice people. But it happens all the time, every day. It’s even happened to me – a forensic accountant.

A year ago, I received a call from our bank informing us that someone had used our credit card to purchase a flight to Turkey, order items from large online retailers, and even “presented” the card (which was still in my wallet) at a department store on the other side of the country. We were victims of a large, well-known retailer credit card breach and thus, our losses were not necessarily our “fault.” But the time I spent to resolve the situation and the stress it caused inspires me to share a few things you can do to avoid inadvertent theft of your precious financial information.

Here are four tips to outsmart the fraudsters and keep your money safe in 2017:
  •    When in doubt, use cash: Find a cute item from a street vendor or via a local public sales site like Craigslist? In addition to ensuring that you transact your business in a well-populated and safe location – like the parking lot of your local sheriff’s office or police station if they allow it – consider using cash to make the sale, rather than your credit card.
  •  Don’t allow your computer to save your passwords, credit card numbers or other pertinent information: A “handy” feature in many web browsers and telephones is the ability to save your name, address, credit card numbers, and passwords. With the constant pop-up asking whether you’d like to “save this password” for next time is so annoying, it can be tempting to just enter the information and forget it.Just say no. It would take only a simple breach of one of those sites (similar to the Target breach), malware installed on your machine, or worse, a lost device, to wreak havoc on your finances and literally give the keys to your kingdom to an unscrupulous person or ring of criminals.
  •  Review your Bank and Credit Card Statements: A timely review of your bank and credit card statements can quickly identify unauthorized usage of your cards, enabling you to stop payment on those transactions and close your accounts. Most banks and credit card companies provide you a 30-day window from the date the statement is issued to review and dispute charges. Be vigilant about reviewing those charges. Sometimes fraudsters will start with nominal charges. When those aren’t discovered, or disputed, fraudsters can be emboldened to make larger purchases or wipe out the entirety of your account.
  •  Know what’s in your wallet: A lost or stolen wallet is a nightmare to deal with. This unfortunate situation can be more efficiently handled if you have copied the front and back of each of the credit cards in your wallet, enabling you to quickly call your bank and credit card companies informing them of a potential breach.

In the busy and automated world we live in, it’s so important to maintain privacy – especially privacy of our pertinent financial information. These small, simple steps can help you protect yourself and your money. And if you ever see something amiss or get one of those unwelcome calls from your bank or credit card company, you’ll be fully prepared to stop the fraudsters in their tracks.

Thursday, December 15, 2016

The Gift of Knowing

Earlier this week, I met with a new client, who I understand, has spent years concerned that things “aren’t quite right” with his business’ financials. He’s been afraid to ask basic questions, for fear that doing so will “hurt the feelings” of or “offend” his long-time bookkeeper.

Unfortunately, this is not an uncommon story. Just today, I got another call. This case appears to be a significant fraud loss – my client’s losses are at the hands of a woman she implicitly trusted. For the first time in her business’ existence, she was headed to the bank to obtain  statements and cancelled check images she had never thought to look at.

A few years ago, a prominent City Councilor called to get my input on the budget and other financial information being presented to him. He was terrified of asking questions during a council meeting for fear of embarrassing himself, admitting that he often voted with the rest, “hoping he was doing the right thing.”

Why is the “unknowing” business owner or manager or public official a recurring theme in my forensic accounting practice?

I’m no psychologist, but in more than a decade as a forensic accountant I have come to recognize that this theme stems from a few commonly-held fears that many of my clients have revealed when they say things like:
  • “I’m just no good at numbers, I don’t want to ask questions and appear foolish.”
  • “If my trusted accountant or bookkeeper leaves because I offend him or her with my inquiries, what will happen to my business? How will we survive without them?”
  • “What if something IS wrong? Facing something that terrible would make me feel like an idiot that I let it go on. I would rather not know.”
  • “I’m just so busy, I hired my accountant(s) to handle this for me. I don’t have time to worry about it.”

If you find yourself in a similar frame of mind, there is help. Simple steps you can take. During this holiday season, as we think about gifts for our family, friends, and colleagues, give yourself and your organization a gift too - the gift of knowing. Give your business the gift of gaining an understanding about your organization’s financial health.

Here’s how you can get started:

1. Regular Financial Reports

A financially healthy organization is able to produce financial reports with a simple click of a button. One of the biggest red flags of fraud is the lack of timely or accurate financial reports. At the minimum, ask for regular balance sheet, income statement, accounts receivable, accounts payable, and check register reports.

2. Practice Asking Questions and Gaining Access

The perception of detection is often a big deterrent to fraud. This perception starts when you ask questions. But you can’t stop there. Fraudsters are the most believable people I’ve ever met. They have an answer for everything. Questions must be combined with a request for relevant documentation.
Pick a few checks from the check register report and ask for the backup documentation supporting those expenditures. Don’t understand why a loan account balance on the balance sheet is so high? Ask for the supporting loan statement.
When you practice asking questions and requiring documents be provided to support your answers, fears about how others perceive you will dissipate, handing your power back to you, squarely where it belongs.
3. Ask for Help
Do my suggestions still strike terror in your heart? Then, don’t be afraid to ask for help. Inquire about the services of a trusted CPA or forensic accountant who can be your surrogate. This doesn’t have to cost you a lot of money. In a matter of a few hours for most business or nonprofit organizations, these professionals will know what questions to ask, what documents to review, and assess areas of your business where resources can be allocated, if necessary (e.g. increased internal controls, review of source documents to verify income is being deposited and funds aren’t being fraudulent disbursed, mitigation of risks going forward).

We all have to start somewhere, but starting is the key. Giving yourself the gift of knowledge this holiday season will give you a healthier, stronger and more stable organization in the New Year. 

Wednesday, November 23, 2016

Three steps to prevent fraud this Small Business Saturday

I can hardly believe it. Small Business Saturday is nearly upon us and if you’re a small business, like Acuity Forensics, then I know all the love and hard work you’ve put into your “baby.” Our good friends at Veraison Wine Events are experiencing their first year in their new retail shop, and I can see the worry and excitement on their faces. As the holidays approach, you are likely like them – nervous with anticipation. Will customers walk through the door? Will we make our numbers? What if we get too many orders, can we fulfill them in time? Can we maintain quality and service if we get too busy?

It is an exciting and stressful time of year.

In the hustle and bustle of the season, I want to encourage those of you brave souls who have ventured into small business ownership to be mindful of something else. Something that I know you think could NEVER happen to you.

Employee theft.

Before you stop reading, please know that it is not my intention to scare you. It is my intention to empower you with a few simple tools to keep your assets secure, your employees safe in their jobs, and more money in your stocking this season!

According to the 2016 Association of Certified Fraud Examiners’ Report to the Nations on Occupational Fraud and Abuse, most businesses lose 5 percent to employee theft. Small businesses (those classified as having 100 employees or less) are likely to suffer losses of at least $150,000 before the theft is uncovered. What could your small business do with that kind of cash?

Honestly, I never want you to have cause to retain me or any other forensic accountant to investigate losses in your business. I’d much rather meet you as a retailer selling me something special for my loved ones this holiday season. To ensure that happens, here are a few things I want you to know:

1. Employees you trust the most are more likely to be the culprits.

Would you give your money, or the “keys to your kingdom,” to someone you did not like or trust? No, you would not. If you asked my clients on the day before the fraud was discovered to rank their employees from most trusted to least, the fraudster would be in the top three. This statistic is without fail.
Remember, make sure you implement proper internal controls over all your employees, no matter how much you like or trust them. Trust is not an internal control.
2. Cash receipt thefts are more prevalent in small business.
Small business owners are twice as likely to be victims of theft in cash schemes, meaning money is taken from you before it has the opportunity to be deposited to your bank account. The best way to avoid this is to:
·         Ensure all sales are receipted.
·         Disallow employees with cash register access the ability to initiate a refund or void a sale without management approval.
·         Verify receipts are in sequence and receipt totals match funds being deposited.
·         Implement and enforce a cash over/short policy.
3. Simple oversight is your best defense.
I know you are busy. I know you worry about costs and sometimes let things slide because your plate of responsibility (like my plate of Thanksgiving dinner) is full. But implementing financial oversight measures doesn’t have to cost a lot of money or take a lot of time. Here are the top three things I want you to do:
·         Verify daily sales receipts match bank deposits.
·         Review your monthly bank statement and cancelled check images each month without fail (or have your spouse, your CPA or another employee to do this for you). This will ensure that all funds leaving your bank account are for the benefit of your business and not an unscrupulous employee.
·         Ask questions, even when you know the answer! When employees have the perception that you are watching, they are less likely to choose to steal.

Here’s wishing you a happy and successful Small Business Saturday, and here’s wishing your stockings are stuffed with profits from a very successful holiday season. 

Tiffany Couch is founder and principal of Acuity Forensics, a forensic accounting firm in Vancouver, Washington. Tiffany’s new book, The Thief in Your Company, releases on Amazon in early 2017. You can follow Tiffany on Twitter @AcuityForensic.

Wednesday, November 16, 2016

International Fraud Awareness Week - What do you Need to Know?

The ACFE, in conjunction with an impressive list of supporting organizations, is promoting “International Fraud Awareness Week” this week (November 13th – 19th).

Why, might you say, is this important?

Because fraud is a risk every business faces. In fact, according to the ACFE Report to the Nations, on average, businesses lose 5% of their gross revenues to fraud.

In my upcoming book The Thief In Your Company (look for it in January 2017),I explain that no organization is immune from the risk of fraud. From the smallest of companies to large publicly traded ones, from non-profits to government entities – fraud risk is real.

There are several contributing factors to clients who experience fraud, and they include:

·        An “It Can’t Happen Here” attitude
·        Implicit trust of employees
·        Little to no oversight over financial transactions
·        Lack of timely or accurate financial reporting

Every single one of my clients is shocked when fraud occurs in their organization. They simply cannot believe it to be true. They believe they are immune from this ever happening to them.

Take it from my client, a local hospital foundation. Earlier this year, their long-time Executive Director was sentenced to three years in prison for stealing hundreds of thousands of dollars by misusing the foundation’s credit cards. This woman was a rising star in the community, someone who had contributed to successful fundraising campaigns for the foundation, and who was a beloved mother and friend.

Her fraud was uncovered by accident when a new assistant, who inadvertently intercepted and opened the mail, discovered questionable charges on the foundation’s credit card.

The monetary losses of the organization did not stop when the fraud was uncovered. The foundation has suffered with declining contributions as a result. And we have not begun to discuss the emotional impacts of the crime on the board members, the employees of the hospital and its foundation, and on many members of the local community.

The impacts of fraud go beyond the loss of money.  The heartbreak is palpable.

Whether your organization is large or small, there are simple, yet effective, steps you can take to mitigate your fraud risk.

The ACFE has a great infographic on actionable items to address fraud risk.

A few additional points come to mind:

1.    First, you have to Look

The #1 fraud schemes are fraudulent disbursement schemes. Simply put, your money is in the bank and your employee uses those funds to benefit themselves. The best way to uncover these frauds includes a simple step each month, which I’m finding more and more organizations neglect. Namely, a thorough review of:

                                         i.   Bank statements and cancelled check images

                                        ii.   Credit card statements

                                       iii.   Payroll reports

2.    Pay attention to the numbers…and your gut

My clients often tell me that “something wasn’t quite right”. Or, “I kept getting information that was inaccurate or late”. A doctor client of mine explained to me that he was seeing more patients and thinking about hiring another practitioner, yet he was taking less and less money home. His office manager was stealing hundreds of thousands of dollars from him.

All of my clients had “bad bookkeeping” and/or a “gut feeling”, but they never obtained supporting documentation to figure out the source of the problems.

3.    Leave the door open

There are likely others in your organization who know when something isn’t right. They may even know about a specific scheme or suspect an individual. Whistleblowers must overcome immense internal and external hurdles to find the courage to come forward. Typically, it is because the fraudster is the most well-liked or trusted person in the organization. Or, the fraudster is concerned about backlash or jeopardizing their job. Or, they simply don’t believe they will be believed.

Talk about the importance of whistleblowers in your organization. Celebrate when those people come forward with new ideas or innovations, and follow through when they provide a tip regarding a problem.

In my office, every week is “fraud week” – we have no shortage of fraud cases we’re working on at any given time, and new cases come in quite regularly these days.

It is my hope that International Fraud Awareness Week will be successful in doing what it sets out to do, creating awareness on the topic of fraud and fraud risk. Take a few simple steps today to talk to your board members, colleagues, management, and staff on this topic. Assess controls in key areas. Implement a hotline. Call your bank and get those statements and check images returned to you each month. Ask questions about those financial reports and request the source documents that back up some of those numbers.

Take your newfound awareness and use it to create the change necessary to reduce fraud risk in your organization.

Tiffany Couch, CPA/CFF, CFE is the founder and Principal of Acuity Forensics, a forensic accounting firm located in the Pacific Northwest. She is currently the Chairwoman of the ACFE Board of Regents and is the author of the upcoming book, The Thief in Your Company.