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. 

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.