Posts by Annie Yoder, CPA, CFE, CFF:
Scam Hurts Professional Caregivers, Businesses
The internet can be a valuable tool for so many honest, well-meaning people. Unfortunately, it can also be a playground for fraudsters.
The Federal Trade Commission (FTC) continues to warn consumers about the dangers associated with a fraudulent check scheme designed to take advantage of those offering professional caregiving services on sites such as care.com or sittercity.com. But these individuals aren’t the only targets. Fraudsters are using the existing account and routing numbers from real businesses to counterfeit checks. Oftentimes, the scammers will go so far as to reconstruct the business’s logo in an effort to appear even more authentic. Once the check is made and the target is identified, the con artist will send a large check to the service provider and ask them to send a portion of the funds to a third party for other goods and services allegedly related to the job.
Recently, a local entity found itself in the middle of an active scam that followed a chain of events in line with the FTC’s original warning. It was only a matter of time before officials discovered that the check and the third party were fake.
“It takes only a day or two for your bank to make the money available to you, but it can take weeks for your bank to determine a check is phony. If you already withdrew that money, you’re on the hook to pay back the bank. If you’ve already transferred the money to the third party, it’s gone – like sending cash. – read the entire FTC warning.
It turns out that the local entity’s accounting vigilance and banking relationships really paid off. Rather than releasing the requested funds identified on the check, which would then be sent off to the fake third-party, the transaction was halted when the discrepancy with the numbers was identified. Because the check number and dollar amount didn’t match any payment previously authorized and issued by the entity, the bank denied payment.
Fortunately, in this scenario, the fraudster was thwarted, the entity’s funds remained secure and the service provider’s bank account remained in the black. Others won’t be as lucky. Regardless of how confident you are that this scheme would never happen to you and your business, the following are three general best practices designed to maintain your safety against a wide variety of threats.
1) Double Check Your Checks With Positive Pay
An anti-fraud service offered by most banks, Positive Pay will match the account number, check number and dollar amount of each check presented for payment against a list of checks previously authorized and issued by the company. This will help the bank determine which checks are legit and which ones should be questioned. This service helps prevent your organization’s funds from being drawn from your bank account.
2) Regularly Review Your Bank Activity
Sure the World Wide Web can be a scary place, but it’s also incredibly useful particularly when it comes to keeping tabs on your entity’s financial activity. Optimally, you should take a bit of time once a day to review your bank activity online. If you can’t monitor it that frequently, it should be a weekly goal – at least. Never, under any circumstances, wait until the end of the month to review your account. By then, it will be too late to take any meaningful action against a scam that’s already active.
3) Maintain A Positive Relationship With Your Banker
Your banker should have a seat at your advisory team’s table. Not only are they providing you with essential service, they have top-notch advice at the ready. If you don’t already, get to know your primary point of contact. Then, make it a point to build a solid relationship with them and their team. Yeah – it’s just that important. This slideshow further illustrates the importance of business/banker relationships.
Email Rea & Associates to learn more about protecting your business, entity or organization from fraud.
By Annie Yoder, CPA, CFE, CFF (New Philadelphia office)
Check out these articles for more fraud prevention articles:
A 20-year employee at a city school charged with managing adult education programs was known as a hard worker who had secured her colleagues’ respect. But when external auditors came into the district to review the school’s financial records, it didn’t take long to realize that something just wasn’t adding up. Questions began to circulate and people starting comparing notes. It wasn’t until her co-workers started questioning how she could afford the costly gifts during the holidays and lavish purchases made to redecorate her home that all the pieces began to fit together. After all, that type of money was certainly not in line with her position’s established pay scale.
Read Also: Are Your Employees Skimming From The Top?
The funds this woman used to redecorate her home were not acquired honestly. They were obtained as part of an embezzlement scheme that lasted for at least two years. Because she attempted to cover her tracks by destroying the financial records, forensic accounting professionals were called in to reconstruct the activity using the school’s enrollment records.
The fraudster was thwarted in this instance … but this is certainly not an isolated incident. In fact, it happens more than you might think.
According to the 2016 Report to the Nation on Occupational Fraud & Abuse by the Association of Certified Fraud Examiners (ACFE), the typical organization loses 5 percent of its annual revenue to fraud. The group estimates that the potential financial loss to organizations worldwide due to fraud is at least $3.7 trillion dollars. The median loss in this particular study, which compiled data from 2,410 cases of occupational fraud in 114 different countries, was $150,000. Nearly one-quarter of all frauds in this worldwide study topped $1 million or more.
What Are You Doing To Prevent Fraud In Your Organization?
If you are looking to significantly decrease the fraud threat in your organization you must have a strategy in place to prevent and detect it. And if a fraudster is in your midst, implementation of anti-fraud controls are effective are an effective way to shut fraud down faster. The Report to the Nations states that the presence of anti-fraud controls correlated to fewer losses and quicker detection.
Which Control Is The Right Control?
According to the report, the top five anti-fraud controls utilized by organizations today are:
- External Audit of Financial Statements
- Code of Conduct
- Internal Audit Departments
- Management Certification of Financial Statements
- And External Audit Internal Control over Financial Reporting
But are they the most effective?
Over the course of this study, researchers found that the five most effective controls when it comes to preventing and stopping fraud are:
- Internal Audits
- Management Review
- By Accident
- Account Reconciliation
A key opportunity to guard against fraudulent behavior is still being missed. For example, while tips were the most common detection method regardless of whether a hotline was in place, fraud schemes were detected by tip in 47.3 percent of cases at organizations that had fraud hotlines. In contrast, only 28.2 percent of cases were detected by tips at organizations without hotlines. It’s clear that businesses and organizations should invest in a fraud prevention strategy that encourages anonymous tips if they aren’t doing so already.
By Annie Yoder, CPA, CFE, CFF (New Philadelphia office)
Check out these articles for more fraud-prevention strategies:
Dear Drebit: As a new business without a cash register, what is the best way (accounting method-wise or other) to protect cash receipts from sales against employee theft or dishonest activity? Thanks, “Ernest”
Dear Ernest: Great question! Segregation of duties is essential when it comes to protecting your business against fraud. Here are some tips to help you protect your business from employee theft or dishonest activity.
5 Ways To Prevent Fraud In Your Small Business
- Your bank activity and all copies of your cancelled checks should be reviewed by someone other than the individual who collected the cash. Similarly, the person who collected the cash should not be the same person responsible for taking the deposit to the bank.
- Inventory records should be reviewed by the business owner, who should then compare them with the company’s sales totals/collections. While your number probably won’t be exact, it will help you identify large variances. Start by reviewing how much inventory was sold and identify the sales price. Then review that total with the business’s sales totals.
- Never use the cash in the register to pay vendors for business expenses. All payables should be processed in such a way to provide you with a paper trail. A check or card payment is ideal.
- Lead by example. Your employees are watching your behavior, which means if they see you removing cash from the till, they will have an easier time rationalizing their behavior to do the same. It’s up to you to set a good tone at the top.
- If the person responsible for collecting payment from your customers throughout the day is also responsible for preparing a “daily reconciliation” of monies, their work should be double-checked by another employee as well. Again, because it’s just that important, someone other than the employee who collected the money in the first place should be the one to take the funds to the bank. After the deposit has been made, the employee should return with the validated deposit slip to compare with the day’s sales activity.
While you can never reduce the risk of fraud from occurring to zero, any control you put in place – even the perception of oversight – will help deter fraud.
I recently spoke about this topic on our podcast, unsuitable on Rea Radio. If you get a chance, check out episode 3: trust is not an internal control for more insight, tips and general fraud prevention advice.
If you would like more information on internal controls, email Rea & Associates. You may also find the information provided in this video to be helpful.
By Annie Yoder, CPA, CFE, CFF (New Philadelphia office)
Learn more about the impact of occupational fraud, check out these articles:
When it comes to your business or organization, you are passionate about making sure your staff embodies your mission and objectives. You take care to select only the best candidates; and when you find them, you conduct thorough interviews, background checks and offer extensive training and timely performance reviews. Months later, now that you have invested significant resources into finding, training and polishing your new employee, you can finally rest easy knowing that you created a team dedicated to common goals and objectives – right?
In its most recent version of The Report to the Nations on Occupational Fraud and Abuse, the Association of Certified Fraud Examiners (ACFE) analyzed 1,483 cases of occupational fraud, which resulted in losses totaling more than $3 billion. Of those cases, the ACFE found that businesses with 100 employees or less are more susceptible to financial losses as a result of the three categories of occupational fraud – corruption, asset misappropriation and financial statement fraud.
Here’s A Tip
Maybe, like so many other business owners, you have already considered these facts and have taken steps to deter fraud in your own offices by establishing and implementing codes of conduct and external audits. While those measures provide a good foundation, you may be surprised to learn that of the nearly 1,500 cases of fraud that were reviewed, auditing only revealed a few instances of fraud. On the other hand, 42 percent of these cases were detected by tips. These tips were frequently reported on fraud hotlines and resulted in a 50 percent quicker response time when it came to detecting and stopping fraud.
The Value of a Fraud Hotline
Be proactive about fraud prevention, instead of reacting when you’re caught in the middle of it. A fraud reporting hotline service, such as Red Flag Reporting, has helped clients stay informed about what’s going on in their businesses. Services like Red Flag provide businesses with an opportunity to focus on building relationships, increasing revenue and improving community outreach instead of chasing down occupational fraud in the workplace.
Fraud hotlines are utilized by small and large businesses alike and can help identify and deter other types of unethical behavior before it grows out of control. Fraud hotlines can result in:
- Fewer OSHA violations
- Lower Workers’ Compensation costs
- A decreased likelihood of employment practices lawsuits
- Zero-tolerance of discrimination in the workplace
Not all employees are bad and not everybody is looking for an opportunity to financially ruin their employer. In fact, fraud hotlines are great because they prove that you are have a team made up of responsible, honest, hard-working men and women. These professionals are the eyes and ears of your business or organization and you not only depend on them to help identify instances of fraud, you need them to report issues to you before they explode into situations that severely damage your financial well-being, employee morale and reputations. By providing your team with a hotline, they will be even more inclined to provide you with a tip or two without feeling like they are rocking the boat.
Are you concerned about the potential for fraud in your organization? Email Rea & Associates to learn more about how a fraud hotline could work for you.
Author: Annie Yoder, CPA, CFE, CFF (New Philadelphia office)
Whether it’s due to limited resources or staffing, you may find it difficult to find time to closely review the financial activity of various departments within your business. But here’s the thing: not doing detailed reviews can leave your business exposed to increased risk of error or fraud. Incorporating analytics into your review process can be an efficient way to detect errors and fraud and will allow you to identify areas of risk within your business. Analytics are frequently part of audit procedures, and compare the correlation between key statistical data and actual financial activity.
How To Use Analytics In Your Reviews
- Identify the information. Identify the department, segment or line item you want to review and determine a time period that will allow the most effective review. Analytics can be used to compare financial activity on a monthly, quarterly or annual basis. Determine what information will allow for the most effective review. For example, if you’re reviewing the revenues related to food service operations you may want to breakout the revenues by type (i.e. lunches, breakfast, a la carte, adult).
- Identify the primary driving factors. The most important step in an analytic is identifying the primary factors that will cause significant changes in the activity you are reviewing. Use the changes in those factors to set expectations for the amount you expect the actual financial activity to change. Continuing with the example above, if you noticed the number of lunches served increased 10 percent in the current month compared to the previous month then you would expect the revenues to correlate with that change.
- Review the results. Compare your expectations to what actually happened. Based on the example I’ve been using, if your actual revenues decreased by 2 percent then you will want to investigate this change further. If actual revenues increased by 9 percent then you may determine the variance is acceptable and you don’t need to investigate any further.
The Discovery Of Potential Errors
If after you’ve compared the results of the analytics and identified a few areas that didn’t meet your expectations, what do you do next?
- Contact the person responsible for the area you reviewed. Determine if there are additional factors that would have caused the variance from your expectations.
- If you have determined there are no additional factors or what was communicated to you was not reasonable, you may want to consider a more detailed review. Theoretically, if you have considered all factors in your expectations, the only plausible explanation at this point for a variance is a misstatement probably due to error or fraud.
- If you have identified an error, review the controls and processes in place to determine what caused the error. This is where you can identify steps to improve the control strength to prevent future errors.
- Inform your auditors of the results of your analytics and the areas of risk you identified. This will allow your auditors to focus on these areas and provide more value to your audit. Your auditors will more than likely ask these questions and you’ll already know the answers.
Using analytics within your business will allow you to properly allocate more of your time and resources to the areas with the most risk. You will be able to efficiently identify the riskier areas and make the necessary improvements in processes and controls to address the risk. This can prevent possible audit findings, adjustments and can even help prevent fraud.
Analytics and Financial Review Help
If you are looking to step up your game as it relates to financial reviews within your company, contact Rea & Associates. Our team of Ohio government auditors can help you incorporate analytics into your reviews so you can get a better picture of how funds are being used throughout your organization.
Looking for more information on how to reduce fraud risk within your business? Check these articles out:
As a business owner you likely have heard more than once that you should treat your vendor listing like Fort Knox – keep it secure and prevent access to all but authorized personnel. Typically this conversation is geared toward access to the vendor master, which lists all the important information for approved vendors. The Fort Knox comparison is apt; vendor master security is extremely important. Access should be limited and only granted to appropriate individuals. Read the rest of this entry “
Is your school struggling with declining funding? If so, you’re probably worried about the top line. You’re closely watching what’s coming in. You’re exploring ways to generate revenue. But, you need to be equally worried about what’s going out.
Credit cards are one of the most common ways for funds to escape your district. This type of fraud is particularly destructive because it tends to be long-term, continuous and difficult to spot. Employee fraud is like a hole in a bucket – no matter how much water you add, slowly but surely, the water level keeps going down. However, if you understand where fraud may be taking place, you can take steps to deter it. Read the rest of this entry “
All too often, school clients come to us asking about fraud detection. But, needing fraud detection implies that there’s fraud to detect. Clients should really be asking us about fraud prevention. A proactive approach to fraud prevention, rather than a reactive approach to fraud, helps schools to stop fraud in its tracks.
One of the most important parts of fraud prevention is risk assessment. Determining your organization’s high risk areas will allow you to focus your efforts on the areas where they’ll be most effective – giving you the best bang for your buck. Read the rest of this entry “
When we speak to clients about fraud prevention, they’re often overwhelmed. They often think they can’t possibly be watching every part of their operations all the time. Fraud doesn’t occur equally in all parts of an organization’s operation and is often committed in the same ways: false invoicing, fake vendors and inappropriate employee expense reimbursements. By watching for easy-to-spot signs in each of these areas, organizations can go a long way towards preventing fraud. Read the rest of this entry “
As auditors, we often hear about fraud after the fact. We’re asked to investigate what went wrong and how it happened. Organizations should not wait until after the fact to identify fraud. Through risk assessment and management processes, organizations can identify potential fraud and act to prevent it. Read the rest of this entry “