Kelly Bullis: Some thoughts on fraud and deception
August 5, 2012
I had originally planned on continuing to talk about he deception on the part of the Nevada teachers’ union and the Nevada AFL-CIO in trying to trick folks into signing a petition called the Education Initiative, which actually will not raise money for education. It was recently put to Judge James Wilson to decide whether it violates Nevada’s single-subject rule.” Let’s hope Judge Wilson does the right thing for Nevada and sends this petition to the garbage heap.
While I’m on the subject of “deception,” it’s time to have a frank talk to business owners about protecting themselves from embezzlement and fraud. This hidden crime – hidden because most of the time, the business-owner victims don’t press charges due to negative publicity – is on the rise due to hard economic times. Over and over again, we hear the victim say something like, “I am shocked! She was my most trusted employee. How could she do this to me?” or, “I gave that young man every opportunity to advance in his career, and this is how he repays me?” Yes folks, embezzlement happens – quite often, actually!
So what can be done to reduce the risk of this happening in your business? Here are some key ideas. They are not all-inclusive, so I highly encourage you to contact your CPA to discuss specific actions you can take that match your own circumstances.
1. Create financial internal controls, then strongly enforce them. (Divide up duties.) Create an atmosphere of zero tolerance for deviation from your controls.
2. Owners need to closely scrutinize their financials on a monthly basis. The financials need to be externally prepared by your CPA as one of the “checks” on the bookkeeper.
3. Establish an atmosphere of high ethics in your company. A great idea is to adopt an ethics code. In our office, we use the “Code of the West” (www.cowboyethics.org).
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4. Make note of any unexpected lifestyle changes in your top employees, including your bookkeeping staff. (“I just got an inheritance” is the oldest excuse used by embezzlers. Verify anything they tell you.)
5. Be aware of any relationship between top employees (including bookkeepers) and vendors. (Does their spouse or significant other work for a vendor? Any other family members associated with a vendor?)
6. Randomly verify your cash balances, inventories, accounts receivable and physical assets. Visually observe, do unannounced spot checks, randomly ask your bookkeepers what the current bank balance is, then call the bank to see if it’s close. Pull large balance outstanding accounts-receivable statements and consider calling that customer to “touch base.” (It might help getting it collected sooner if it’s legit, but you might discover the customer says they owe much less, in which case it’s time to investigate further.)
7. Watch for strange patterns of recurring transactions – same amounts, same dates, same vendors, etc. Investigate and question anything unusual.
Have you heard, “It’s easier to go down a hill than up, but the view is better from the top.”
• Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459; He’s on the web at BullisAndCo.com and on Facebook.