Thursday, August 28, 2014

Taking the leap to start your business

Have you ever wondered what it would be like to start your own fraud examination practice? To be your own boss? To be free to take the reins on a case? Perhaps you’re already a self-employed fraud examiner, and you’re looking for ideas on how to find balance in your life.  Or perhaps you’re looking for ideas on how to find clients. If so, I hope my experience and advice will help you on your journey.

In 2007, with a promising career at a well-known firm ahead of me, I thought I was set. Visions of partnership and my own (corner) office danced in my head! What I couldn’t foresee were the changes taking place that forced me to stand up for my ethics and change my definition of success.  I had plenty of employment offers — many from other prestigious accounting firms — but I found myself at a crossroads. Building a practice for another firm seemed daunting, at best.

I discussed it with my spouse, who said, “If you don’t start your own business now, you may never get another chance.” “Who, me? A business owner?! The one who plays it safe, who has a plan? Who isn’t, by nature, a big risk taker? Yeah, right!” The idea was as farfetched as my flying to the international space station.

But, nearly seven years after that conversation, that’s exactly who I am. A business owner operating a thriving forensic accounting (fraud investigation and litigation support) practice.

While the practice has grown exponentially over the last several years, it hasn’t been easy. I’ve learned several important lessons along the way, which I will share here.

Take time to plan
A quote by an unknown author says it all: “If you fail to plan, you plan to fail.” Planning your business takes time and energy. And planning is not a one-time effort culminating in a static document.

At a minimum, plan your budget. Consider costs such as business insurance, professional liability insurance, taxes and licensure. If you intend to immediately secure office space, be certain to factor in the cost of rent, leasehold improvements and utilities of the new space.

Research professional fee rates in your area, and price yourself in a median range. Take your minimum budget requirements, divide it by your set hourly rate and you’ll have the minimum number of hours you’ll need to bill clients and generate revenue.

But don’t stop there. You’ll need to factor in at least 30 percent more time for running your business. Marketing, billing and other administrative tasks will devour more time than you can imagine. This is work that doesn’t generate revenue but is crucial to running a successful business.

Regularly take time to evaluate your plan and measure it up to your reality. Rework as necessary.

Don’t navigate waters alone
If you’re a fraud examiner you need the skills of an accountant, a psychologist, an attorney and a technical writer (to name just a few). Realistically, most of us don’t come to the table with all of these skills. For example, I’m a CPA. Before I was exposed to fraud and litigation work at a big firm, I could tell you about preparing tax returns and performing financial statement audits but nothing about writing a fraud examination report.

Perhaps you have a background in law enforcement with excellent investigative and interviewing skills, but you’re unsure of the accounting-related facets of an engagement. Whatever the case, don’t attempt to offer services or skills that you don’t possess. You don’t have to be everything to everyone. (Remember the third point in the ACFE Code of Professional Ethics: “A Certified Fraud Examiner … will accept only assignments for which there is reasonable expectation that the assignment will be completed with professional competence.”

Much of my success has come from putting together teams of professionals who offer complementary skills. It’s not uncommon for me to be engaged on a matter and subsequently contract with a computer forensic specialist, a business valuation expert or a private investigator with more interrogation skills.

Stick to what you know and do it well. Team up with other professionals in your area. You will find that they, in turn, will remember you next time they need your specific skills.

Communication is key
Client communication at our firm starts with a robust engagement letter. This letter communicates the type of service to be performed, document retention, fee schedules, billing and payment agreements and dispute resolution. We don’t perform any work until the client (and its attorney, if applicable) executes this engagement letter.

Communicating and understanding expectations is key to any successful engagement. Not all clients (or their attorneys) are the same. Some attorneys loathe email communication as it relates to their client’s matter; others use it as the only means of communication. One client might want a full written report of investigation when you’ve completed your assignment; others may only want an oral report. It’s imperative to understand your client’s wants and needs up front to ensure you understand what the end goal looks like.

Communicating about fees can be difficult for some, but it’s imperative for cash flow. A common fee issue is when an estimated budget clearly isn’t going to be sufficient for the amount of work necessary to do a job well. You’ll know this is the case when you’ve spent one-half of the client’s money, but you’re not nearly halfway through the work. When this happens, stop working. We call a timeout and contact our client. We explain the nature of the issue (perhaps it’s a lack of documents, or we’re finding more than we first expected) and ensure there’s an agreement for further funds. Or, we give the client options for a different scope of service. Communicating with your client at all times during the engagement helps to ensure that you’re meeting their expectations and they’re honoring their obligations.

Pick your head up
Unlike a traditional tax or accounting practice, a fraud examiner doesn’t have the luxury of annuity work. It can easily be feast or famine. Just when I’m convinced that no work will ever come through the door again, numerous potential clients will call me or dormant cases will fire up again.

So, when there’s work to be done and we’re being paid by the hour, we often put our heads down, pencils up and charge forward. However, losing yourself in your work can ultimately damage your practice. You have to find time in your day to do some sort of marketing. Take a local attorney to lunch, write a newsletter or schedule yourself to speak at a professional networking function. Consistent, frequent and targeted marketing (even when you’re busy with client work) helps to ensure your pipeline will always be full.

Cash is king
You’d think a CPA would have cash flow down to a science, but it can be an ongoing struggle, especially with a feast-or-famine practice. But losing the cash-flow worries can be as simple as working on retainer.

Admittedly, it’s not easy to ask someone to pay you money before you’ve even met them or started work. The first time I asked for a retainer, a whopping $1,000, I prepared myself for the refusal, or worse — the potential client walking away from the engagement. So, I was surprised when he pulled out his checkbook and wrote a check immediately! We hold client retainers in a separate account until we’ve earned the money. We then transfer the funds to our operating account for paying bills immediately. Another way to manage cash flow is to bill clients weekly, semimonthly or immediately when we complete an engagement.

We’ve made it a practice to stop working if retainers haven’t been replenished, or if monthly invoices aren’t paid by the tenth day of the month. We communicate this clearly in our engagement letters, and sometimes we’ll stop work on a case. It’s funny how the money arrives in the mailbox when you cease working. Don’t waste your time or talent on clients unwilling to pay you.

It’s a marathon, not a sprint
Building a client base does not happen overnight. We’ve cultivated a successful practice by making clients happy — one at a time. Happy clients tell others about you. Cultivate your own satisfied clients by knowing your strengths, planning for your future and communicating clearly and often. Success may not look like the dream of the corner office you once had in your head. However, perhaps, like me, you’ll find that the reality of entrepreneurship is better than any dream you could imagine.
Published in Fraud Magazine, September/October 2014 Issue

Friday, July 25, 2014

Don't let your business become a victim of bank fraud

Your bank or credit union is the lifeblood of your business and critical spoke in the wheel of daily commerce. To their credit, financial institutions are working hard to make doing business more convenient for us.
Recent interactions with clients, however, has led me to the conclusion that some of these conveniences, used improperly or without oversight, can increase a company’s risk of fraud.
This doesn’t have to be the case! Understanding these products – what they can and can’t do – and your role in proper oversight over your banking transactions increases the likelihood that these products can work in your favor and decreases the chances that a fraud scheme goes unnoticed.
Positive pay
Simply put, positive pay ensures that the bank only pays on checks presented to them that match the amount and check number you have provided in advance. Checks presented to the bank that do not match the positive pay file, commonly called “exceptions,” must be cleared prior to being paid. I highly recommend that companies ensure that exceptions are cleared only by someone other than the person who initiates the positive pay file or who has access to the company’s check writing system.
Online bill pay or funds transfer access
I once investigated a fraud where an unscrupulous controller directed $5 million of my client’s funds to his own account using online bill pay. The bank statements indicated that expenditures were legitimate. It was only when the set up file was reviewed that it was discovered the funds were being misdirected to the controller’s personal account. Any online transfers of funds from your company to an outside source should be set up by one person and authorized by another. Many online banking systems can be set up with these dual controls, requiring the actual funds transfer be approved by a user different than who set up the initial transaction.
Remote deposit
“We only go to the bank once a week because we only receive checks, we don’t take cash.” Checks written to your business are as easily converted for someone’s personal benefit as cash. It is highly recommended that cash and checks be taken to the bank daily, this eliminates the risk of theft or loss (and increases your cash flow!). Many banking institutions provide remote deposit machines that allow you to deposit checks as you receive them. While there are transaction fees associated with this convenience, it can be a convenient way to increase your cash flow and decrease your risk of fraud from a skimming scheme.
Online banking
Access to banking transactions online is one of the most delightfully convenient products banks provide. Too often, however, my clients are choosing not to receive paper statements and/or choosing not to receive images of their cancelled checks. As such, the most critical oversight function in a business, the review of the bank statements and cancelled checks, is foregone. Take it from me, it is excruciating to wait for cancelled check images to load and most business owners don’t have that kind of time! Fraudulent disbursements (i.e. someone writing checks to themselves or their vendors for their personal benefit) are the number one fraud scheme, and the review of statements and cancelled checks is the number one way such a scheme is uncovered. Ask your bank to send you paper statements with the cancelled check images and perform that simple review function before your bookkeeper or accountant reconciles the account.
Work with your banker to identify what conveniences make sense to streamline banking functions and add additional security. And as with any of life’s conveniences, don’t lull yourself into a false sense of security. Your active participation in oversight and monitoring is the best internal control you can implement.
Published in the Vancouver Business Journal July 25, 2014

Wednesday, July 16, 2014

Knowing When to Walk Away... and When to Run

Tiffany was recently interviewed for an article in The Fraud Examiner, the online newsletter for the Association of Certified Fraud Examiners (ACFE).

July 2014
By Scott Patterson, CFE

You have been toiling for months on a case and you know where the evidence is leading. The satisfaction of solving the puzzle and unraveling the trail of fraud is what a fraud examiner lives for. As you present your findings to your client and discuss the need to dig further into certain clues and red flags, this is your moment.

Yet, the meeting turns … strange. Your client seems to either not hear, or not understand, what you are telling him. Finally, it becomes clear: Your client wants you to stop pulling on the thread you have been unraveling, and put your attention elsewhere. Despite your protests, and the evidence you have gathered, your client wants you to firmly shut that door.

It is a dilemma that would put any fraud examiner in a bind. You know there is more to the story, but the client who writes your check is telling you, in no uncertain terms, the scope of your job – and how to do it. Which stones to turn, and which are off-limits.

While it may be difficult to do, the best decision when your work is being compromised is to disengage from the client. That’s what ACFE faculty member Tiffany Couch, CFE, CPA, CFF, has had to do more than once. In a recent interview with the ACFE, Couch discussed uncomfortable situations in which she had to make the choice to leave business behind, and keep her ethics – and reputation as a CFE – intact.

“I’ve had a few ethical dilemmas in my career,” Couch said. “Most recently, I was working for a city, and I’d been there for a very long time, six to eight months, off and on.  And … I was noticing that the client was at risk in certain other areas – areas that they had not communicated to me about.

“But because of my proximity … I could see what was going on,” Couch said. “I went to the city council, and I said: ‘You’ve got a problem here.’”

'Being Too Fussy'
After sharing her insight with the council, Couch immediately received pushback – from none other than the city’s mayor.

“The mayor called me into his office, shut the door, and said: ‘You’re being too fussy. You are here only to do your job. And your job is not to tell us – or to be looking at – these other things.’”

Couch, nonplussed with the mayor’s response, soon found herself in an argument. She explained to the mayor: “Now you’re asking me not to do my job, because my job is to tell you everything that I see. Whether or not you agree, if it’s my opinion that it’s a problem, and I’m concerned, I have to communicate that to you – and the rest of your fellow city council members.

“And [the mayor] said, ‘No, you’re not going to do that.’”

That was that. With Couch convinced she could not effectively do her job, she decided that afternoon to disengage from her client, the city. And while the choice was clear, she said that having to just walk away from months of work was difficult to do.

'Am I Hearing You Right?'
Sometimes, you might be put to an ethical decision before you are even hired. Couch recalls a situation where she was a lock for a big job, “a six-figure case, easy,” that would provide a long period of work. “It was a fraud investigation … It was just really going to be fun,” she said.

Unfortunately, her first meeting with the potential client’s attorney raised red flags right off the bat.  According to Couch, the attorney told her that the client was being accused of various wrongdoings … and he further told her that “we have all of these documents, and here’s what happened.  And here’s how I’m going to explain it. And I want you to testify. I want to make sure that you testify that all of this was reasonable and okay.”

Couch was shocked. “This was at the first meeting before I’ve even looked at any documents,” she said. “And I thought, ‘Did I hear him right?’

“So, I asked a few other questions, and I could clearly understand what he was saying. And he was looking at me and saying: ‘I want you to testify the way I want you to testify – so that my client will not be in trouble.’”

Her integrity on the line, Couch walked away from the opportunity.

“That night the associate called and she said: ‘You had the case, Tiffany.’ And I said: ‘Yes, I know I had the case.’ And she said: ‘Why did you not take it?’

“Because he was telling me how he wanted me to testify before I even looked at a single document,” Couch said. “And I’m never going to be known as the expert who can be paid for her opinion. You pay me for my time, my opinion is my own.”

Such a statement serves as an important reminder for all fraud examiners. Your opinion is your own – along with your integrity and reputation. Taking the ethical route is not always about accepting the right engagements. It also means knowing the ones from which to walk away.

Thursday, May 22, 2014

Confirming Cash Receipts

Whether you or your clients receive payments from customers via cash or check there are several good controls to keep in mind to ensure all of your money makes it to the bank! Too often we hear "We only go to the bank once a week because we only collect payments in the form of checks." Or another favorite, "Our employees are so trustworthy, we don't create receipts every time cash or checks are received." Yikes!

Take it from us, fraudsters are always the most trusted employee. We want to make sure your employees are safe in their jobs and that your money is safe, too! Here are some tips:
  • All cash or checks received should be receipted via numerically sequential receipts (even if a customer declines receipt)
  • Endorse checks with bank stamp the moment received
  • All cash and checks should be maintained in locked drawer or safe at all times throughout the day
  • All funds should be deposited daily (even if "only" checks)
  • For a non profit or other organization that receives unexpected funds, ensure there is dual custody over the opening of mail or during fundraising events
  • Consider installing surveillance cameras at the front desk and/or other areas where cash is received or processed
  • Segregate duties around cash receipt functions. Make sure the person opening the mail/receiving customer payments is NOT the same person who has the ability to record credits on customer accounts or take funds to the bank
  • For a non profit or church organization, make sure cash counting volunteers are rotated and that members of count teams are not related
In addition to ongoing controls appropriate to your organization, there are several ways to ensure proper oversight over cash receipts.
  • At the end of the day, week or month, ensure the entirety of sequential receipts are accounted for and that all funds received per the receipts can be traced to bank deposits
  • Review bank statements to ensure deposits per the bank match deposit amounts (and dates) per the accounting records
  • Review customer records to ensure no unauthorized credits or write offs were recorded (which would indicate money was received but diverted)
  • Perform analytical review to determine whether cash receipts are "in line" with past performance
  • Cash business? Take a look at your bank deposit slip book and ensure that you see amounts for currency and coin at the top of each deposit slip
Do you see discrepancies in your processes and procedures or need help with internal controls? Call Acuity Forensics! (360) 573-5158

Thursday, March 27, 2014

Combating Fraud

Want more tips to prevent fraud? We've got them!
The Association of Certified Fraud Examiners (ACFE) has published simple steps any organization can take to identify and effectively manage potentially costly fraud losses:

1. Be proactive. 
Establish and maintain internal controls specifically designed to prevent and detect fraud. Adopt a code of ethics for management and employees. Set a tone at the top that the company will not tolerate any unethical behavior. 
2. Establish hiring procedures. 
Every company, regardless of size, can benefit from formal employment guidelines. When hiring staff, conduct thorough background investigations. Check educational, credit and employment history, as well as references. After hiring, incorporate evaluation of the employee's compliance with company ethics and antifraud programs into regular performance reviews. 

3. Train employees in fraud prevention. 
Once carefully-screened employees are on the job, they should be trained in fraud prevention. Are employees aware of procedures for reporting suspicious activity by customers or co-workers? Do workers know the warning signs of fraud? Ensure that staff know at least some basic fraud prevention techniques. 
4. Conduct regular audits. 
High risk areas, such as financial or inventory departments, are obvious targets for routine audits. Surprise audits of those and all parts of the business are crucial. 
5. Call in an expert. 
For most accounting and law firms, fraud examination is not a core business component. That's why, when fraud is suspected or discovered, it is imperative to enlist the anti-fraud expertise of a Certified Fraud Examiner (CFE). The CFE credential is recognized by businesses and governments worldwide as the standard for fraud prevention and detection. 

We can help you at Acuity Forensics. Give us a call at 360-573-5158.


Monday, January 27, 2014

Simple ways to protect your business from fraud

The client call I recently received sounded familiar. On the phone, a distraught business owner described what he had found: “I caught her writing checks to herself; one for $5,000! She has worked here for years and is the best employee we have.” I expressed my regrets about what he was experiencing and asked several clarifying questions. In all seriousness, he asked me, “Do you know her?”
No, I didn’t know the fraudster who took $550,000 from him, but I definitely know her type. The most heartbreaking part of my job is the realization that most fraud schemes are easily detectable. No matter the amount of loss or the type of scheme, there are common denominators that business owners can learn from.
Fraudsters are typically well-liked by owners/management.
Would you give the keys to your kingdom (i.e. access to your money) to someone you didn’t like? Fraud occurs when someone is experiencing an internal pressure (e.g. debt, unemployed spouse, family crisis), can rationalize their behavior (“I am worth more.” “I will pay it back next time.”) and has opportunity to commit the act. This can occur when someone has access to the money and knows they are trusted in their job. Fraudsters are affable and have an answer to everything. They know you’ll believe them and they don’t have to show “proof” when you ask a question.
Ask questions and demand backup documentation, even if you know the answers. Employees are less likely to perpetrate a crime if they know there is oversight over their work. Trust is not an internal control.
Reviewing monthly bank statements and cancelled checks will uncover the majority of all frauds.
Well over 50 percent of all frauds are attributable to fraudulent disbursement schemes. Overpaid payroll, fictitious expense reimbursements, and check tampering schemes are so common that it’s often the first place I look.
Review your bank statement every month. Are there any electronic payments that look odd to you? Ensure your bank returns cancelled check images. Are there payments going to any individuals or vendors that are out of place? What about payments to credit cards, utilities or other common vendors used by businesses and individuals? Are there two per month, indicating that someone is paying your bills in addition to their own? This review should be performed by someone other than the person in charge of accounts payable.
Incoming cash and checks are easy to steal.
Incoming cash and checks are easy pickings for fraudsters who think they need your money. Yes, you read that correctly, incoming checks written to you are easily converted to benefit the fraudster – just ask my recent client who lost over $250,000 from a similar scheme!
Internal controls over cash receipts should include a receipt method for all monies received. Those receipts should be sequenced and reconciled to the amount of cash and checks deposited to the bank. Checks should be endorsed the moment received and all funds should be taken to the bank daily. Review your accounting records to ensure no unauthorized credits or write-offs have been posted to customer accounts, which would indicate money has been skimmed.
Most frauds exceed six figures and have occurred for 18 months by the time they are uncovered. Being a business owner myself, I know how busy you are. I also know how you love running your business and bookkeeping is a chore (yes, even this accountant thinks so!). Internal controls and proper oversight do not have to be cumbersome, involve multiple people, or cost more. Keep it simple and effective and save yourself the heartache of learning that your best employee has actually been your worst one.
This piece originally appeared as an Accounting & Finance column in the January 24, 2014 edition of the Vancouver Business Journal.

Thursday, January 2, 2014

The Fraud Triangle

People often ask about the "basics" of internal fraud. Why it happens and what can be done to prevent it. The easiest way to show this is the Fraud Triangle....

What is Fraud?
Occupational fraud is the use of one's occupation for unauthorized personal gain through deliberate misuse of the employing entity's resources or assets. The Association of Certified Fraud Examiners (ACFE) estimates that typical organizations lose 5% of their annual revenues to fraud (2012 ACFE Report to the Nations on Occupational Fraud & Abuse).


Common Pressures:
High Personal Debt
Gambling or Drug Addictions
Personal Crisis
Overworked (fewer people doing more work)


Common Rationalizations:
I will pay it back when my next paycheck comes in
Everyone else is doing it
I am underpaid and over worked
Just this once...

It's important to note that pressure and rationalization are most often “internal” motivators that are beyond an employer's control. However, the one variable in the fraud triangle that is within the control of owners and management is OPPORTUNITY. Limiting an employee's opportunity through a strong tone at the top, proper internal controls, and oversight can limit losses due to occupational fraud.

How Does Fraud Occur?
Occupational fraud predominantly occurs as:


Asset Misappropriation:
Comprises over 87% of all cases reported
Theft of Cash
Fraudulent Disbursements
Payroll Schemes
Expense Reimbursement Schemes


Approximately 33% of all cases reported had elements of corruption schemes


Fraudulent Financial Statements:
Nearly 8% of all cases reported were financial statement fraud schemes
Earnings management
Concealed liabilities
Timing differences
Improper disclosures

How Can Businesses Minimize the Risk of Fraud?
Make your vigilance against fraud front and center. Fraud should be discussed openly and your employees should all be trained on what to look for and pitfalls to avoid. Owners and management are responsible for setting a tone of acceptable behavior. Additionally, an anonymous tip line to report fraudulent activity is always a good idea.

Internal Controls Best Practices:
  • Have bank statements AND cancelled checks mailed to the business owners home. Review the bank statement for unauthorized withdrawals; review the front and back of each check to ensure they represent authorized business payments.
  • Segregate duties and make sure they stay segregated, even in periods of downsizing.
  • Perform unexpected "audits" on payments - demand backup documentation and reviews throughout the year.
  • Cash business? Verify cash is listed on the top of bank deposit slips and that deposit slip totals match bank statement totals.
  • Perform annual reviews of vendors and service providers to ensure they are legitimate.

What Should be Done When Fraud is Suspected? 
If you suspect fraud or have received information that alleges fraud has occurred, contact legal counsel for your company, notify the local authorities, and review your insurance policy to fully understand the benefits of your coverage. You may not realize it, but your insurance may cover a portion of the loss and in some cases, the cost to investigate the loss event and establish the loss amount.

Next, contact us! We can perform an independent investigation, quantify the loss, and professionally document the event. We will work with you (or your clients) to be a seamless member of your team.