those with fewer than 100 employees — tend to suffer more losses (one-third of all fraud losses) and disproportionately higher losses. These organizations are particularly vulnerable to fraud as they typically lack the anti-fraud controls existing in their larger counterparts.
Since the money lost is all bottom line cash, think how much more successful you would be if you were able to eliminate fraud. In many cases, your profits would double!
Business owners do not want to think about fraud and they do not want to insult their staff by adding some fraud prevention procedures. This is a mistake. To prepare for this article, I googled this phrase: “bookkeeper charged with embezzlement 2012.” 144,000 results came up. As today is June 19, we are not through even half the year yet.
So what do you do? How much will it cost and how much work is it going to take? To some extent, the procedures will be a little dependent on your business but there are strategies that go across all businesses.
As an example, here is what I did with one of my clients. This has been very cost effective for them and it almost eliminates fraud through embezzlement.
- The company was a graphics design company. Total revenues were just over $5 million per year.
- Their previous bookkeeper quit. When their new bookkeeper found some odd accounting entries, they called me in to investigate. The previous bookkeeper had set up a fake company and was writing checks to this company. The general ledger account for this was “miscellaneous.” This is a case of embezzlement.
- I found over $60,000 of money stolen. The owner felt so stupid (and the employee was already gone), he did not prosecute. In fact, he didn’t do anything and she got away with the theft.
- Here is what I put in place for him to keep this from happening in the future:
- I hired an outside bookkeeper to reconcile the bank statements each month.
- Part of her reconciliation was that she had to compare the check payees to the endorsement on the back of the check and to the check register.
- She produced a list of new vendors for that month (on average this was 3 per month). That information was sent directly to the owner for review.
- The outside bookkeeper billed the owner $70/month for doing this work. A little more expensive compared to the in-house bookkeeper but this segregation of duties brought great value in fraud prevention.
It is not hard to incorporate a few new processes that will really cut down on the risk of fraud. Talk to your CPA, talk to me, talk to a fraud prevention specialist. But do not assume that you are safe from fraud.
Here is my parting comment. According to the Association for Certified Fraud Examiners, 42.1% of all of you have fraud being committed in your business. It’s time to pay attention to this threat and find a way to treat it.