| When most people hear the word fraud, they | | | | "loyal" to someone who works for him. That was until I |
| immediately think of BIG fraud, the Enron or Worldcom | | | | revealed that it was more likely that 'nick' was giving |
| scandals for example. The truth is that the amount of | | | | 'extras' to these customers and getting 'extras' from |
| money lost to the few BIG scandals pales in | | | | the vendors. |
| comparison to the amount of money lost from small | | | | 5. Customers Calling about Late Applied Payments |
| businesses across this country every year. The | | | | Customers call complaining that their payments are |
| average loss to a large corporation due to fraud is | | | | being applied to their accounts late or not at all. |
| around $97,000 for each instance, (from the inception | | | | Someone pays their bill on the first of the month, but |
| or beginning of the fraud to the discovery) for the | | | | the payment isn't applied to their account until the |
| small business a single instance of fraud (from | | | | fifteenth. This could be that your mailman is really slow, |
| inception to discovery of fraud) can reach upwards of | | | | or this could indicate a "lapping scheme". This is how it |
| over $110,000. Multiply that by the many more numbers | | | | works: Employee converts and uses the payment for |
| of small businesses than there are large businesses, | | | | Customer A for his own purposes. The payment for |
| and you will see why the figures are so staggering. | | | | Customer B then comes in and he applies that |
| One estimate put the loss of small businesses at ten | | | | payment to A, then C pays his bill and the employee |
| times the amounts lost to the large corporations! | | | | uses C's payment to cover B's account, etc. Eventually |
| Many times though, the small business owner that is | | | | it collapses, but it can continue for a long time until the |
| being defrauded isn't aware that he or she even | | | | employee gets greedy and begins taking more |
| makes enough money to be stolen. So fraud isn't an | | | | payments than applying them. If the same employee |
| issue that is even close to the forefront in their mind. | | | | has control over the General Ledger too, the Lapping |
| How can you be sure that you aren't being taken | | | | Scheme can occur indefinitely as he or she can cover |
| advantage of? You can look for the following signs | | | | the tracks of missing payments by 'losing' the invoices |
| that a fraud is being committed. | | | | entirely. |
| (And please remember that while these signs may be | | | | 6. Vendors Call About Receiving Two Checks for the |
| an indication that there is a fraud occurring, that there | | | | Same Invoice. |
| may be another explanation for these signs being | | | | Vendors call wondering why they are receiving two |
| present, in addition, that the way in which you conduct | | | | checks for payment instead of one. This could indicate |
| the investigation, or confront the suspected party could | | | | what is called a 'pay and return' scheme. This is how it |
| add insult to injury by giving the culprit an opportunity to | | | | works: the employee in charge of sending payments |
| steal from you {again} in the court room with a | | | | makes out two checks to the same vendor for the |
| frivolous lawsuit. So please find your local Certified | | | | same amount on subsequent checks. Once the books |
| Fraud Examiner and inquire about their services.) | | | | reflect the missing payment, the employee will call and |
| 1. Your Cost of Goods Sold | | | | apologize about the two checks and request that one |
| Despite the volume of business remaining constant or | | | | get sent back, which they will then intercept and |
| even increasing, it seems that expenses seem to | | | | convert to their own use. |
| increase unexplainably. These "expenses" are then | | | | 7. Costs for Materials Increases and You See Some |
| ascribed to services or other hard to verify accounts. | | | | New Vendors |
| In today's economy gas is an ever flexing expense. | | | | Your costs for materials rise unexplainably. This is a |
| There are periods of sharp increases and smaller | | | | similar result to Number One above but accomplished |
| decreases. But not counting the expenses such as | | | | through a more devious means. There may very well |
| gas or other volatile materials if it is increasingly costing | | | | be other explanations for this but if you have what is |
| more for you to sell the same amount of goods, then | | | | known as a "pass through" scheme that is when the |
| there could be a serious problem going on. | | | | employee in charge of ordering parts, or materials |
| 2. Your Devoted Employee | | | | takes the initiative to form a corporation (usually called |
| The good friend you have in your bookkeeper refuses | | | | a shell company) from which he will buy from your |
| to take a vacation or a day off and insists on doing | | | | vendors that materials you are buying now and sell the |
| more than is asked when it comes to duties assigned. | | | | same materials back to you at a slightly increased per |
| Without proper internal controls, a 'one-person' | | | | unit cost. After a while, it adds up. A lot of times the |
| bookkeeping system leads to blatant fraud that is | | | | employee will have left years earlier, and if no one |
| easy to commit and to cover up on a temporary basis. | | | | updates or checks the validity of the vendor list, the |
| More fraud is discovered accidentally when the culprit | | | | 'retired' employee will continue to receive income from |
| is forced to stay home by illness or another reason. If | | | | his many "shell" companies he or she set up before |
| you have one of these employees, you either have an | | | | leaving. |
| extremely devoted employee, or you have someone | | | | 8. New Faces and Loitering Friends |
| with something to hide. | | | | New faces seem to loiter all day around your newly |
| 3. Ghost Employees | | | | hired employee. This happens occasionally and there is |
| You have the same number of employees, and yet | | | | often no worry, but sometimes that employee is giving |
| payroll seems to increase beyond what you | | | | discounts, free merchandise or pretending to ring up |
| remember it being. Sometimes a fraudster will set up | | | | orders and take money for merchandise when he is |
| what is called "ghost employees", and they can be | | | | really allowing friends to rob you blind. Sometimes, it's |
| former employees that no longer work there, friends | | | | just a kid excited about having his first job, sometimes |
| or relatives of the fraudster or entirely fictional people | | | | it's something else entirely. |
| all set up to be paid as if they were actually there | | | | Conclusion |
| working for you. Sometimes these unscrupulous | | | | Remember that the way you handle this matter will in |
| individuals set up ways to continue to get paid even | | | | a large part determine your success in recovering |
| after they have been fired or have quit. (But that's | | | | what was lost. It may or may not be possible. It is |
| another article.) | | | | usually best to contact your local Certified Fraud |
| 4. Kickbacks or Loyal Vendors | | | | Examiner. CFE's do a lot of traveling as well but there |
| You have vendors and or customers who refuse to | | | | is probably one locally that you could consult about |
| deal with anyone except the one individual they have | | | | your individual situation. If you are in the state of Florida, |
| been dealing with. I remember working for one store | | | | Homesoon Accounting Services can help you. We |
| owner who was pleased that some customers would | | | | have a Certified Quickbooks Pro Advisor, David |
| walk out or wait for 'Nick' to arrive and he thought it | | | | Roberts, expert in using Quickbooks to help find fraud. |
| was so wonderful that these customers would be so | | | | Call 407-968-5241 for a consultation. |