Alfa One Corporation Complete Accounting Solutions: How to Protect Your Business Against Fraud

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<ul><li><p>alfa one corporation complete accounting </p><p>The amount of fraud being perpetrated against businesses is getting worse, both in terms of the</p><p>number of instances and the amount of money that is being lost, and some of that can be</p><p>attributed to worsening economic times, according to research. Almost half of the companies</p><p>around the world surveyed by PriceWaterhouseCoopers ( in 2009 reported that</p><p>they suffered one or more instance of economic crimes. The survey, which involved 3,000</p><p>executives of businesses large and small in 54 countries, found that 88 percent of U.S.</p><p>companies that reported some type of fraud also reported declines in financial performances. In</p><p>addition, three-fourths of the crimes against businesses in the U.S. were carried out by insiders. </p><p>For small and mid-sized businesses, the vulnerability to fraud can be compounded because of the</p><p>sometimes informal nature and the fact that fewer staff members can result in less oversight --</p><p>and a lack of checks and balances. </p><p>'Small businesses tend to be very informal in nature. A lot of times they're either formed with</p><p>friends or family members, and all the formalities are not in place as they would be in a larger</p><p>business, ' says Elena N. Lougovskaia, co-founder of Lougovskaia Boop, LLC</p><p>(, a law practice in Cleveland, Ohio, focused on business law and</p><p>commercial litigation. 'Employees wear many different hats and perhaps decision makers should</p><p>be separated from people who sign the checks or one person should be responsible for signing</p><p>check and a separate person should be responsible for accounting, processing invoices, and</p><p>purchasing.' </p><p>The following pages will cover the types of fraud against business, how to detect fraud in your</p><p>business, and how to set up policies and procedures to prevent your business becoming a victim</p><p>of fraud. </p><p>How to Protect Your Business against Fraud: Types of Fraud against Business </p><p>The media is filled with stories of consumer victims of fraud. But the reality is that businesses,</p><p>especially smaller enterprises, are more often the victims of fraud than consumers. The types of</p><p>fraud can vary wildly, from accounting scams carried out by employees to fraudulent returns from</p><p>customers to data theft by outsiders. Businesses have less protection than the consumer and, in</p><p>some cases, can be held responsible in a business fraud scheme, owing liability to banks,</p><p>shareholders, insurers, credit card processors and other entities. New laws also hold businesses</p><p>accountable for liability in the event of some types of fraud perpetrated by third parties, such as</p><p>data breaches. </p><p>Sources of Business Fraud </p><p>In order to understand the types of fraud that your business may be vulnerable to, you must first</p><p>understand the different sources of these crimes. Most professionals agree that the top sources of</p><p>business fraud, ranked in the order of frequency and cost, are as follows: </p></li><li><p>Employees and Officers </p><p>In previous surveys, PriceWaterhouseCoopers had found that the sources of crimes against</p><p>business were evenly split between insiders and outsiders. But in the 2009 survey, the numbers</p><p>tipped in favor of insiders carrying out the majority of crimes -- in 76 percent of the cases in the</p><p>U.S., according to the survey. The increased financial pressures in many companies have also</p><p>prompted a rise in the amount of fraud committed by middle managers, which now accounts for</p><p>42 percent of internal frauds globally from 26 percent in 2007, the survey found. Meanwhile, the</p><p>Association of Certified Fraud Examiners (ACFE) ( estimates that business</p><p>organizations lose 5 percent of annual revenue to fraud by employees and officers. </p><p>'Managers and small business owners have a tendency to trust their employees to a higher</p><p>degree and, because they are doing more, they may not be as detail oriented as they should be,'</p><p>says Allan Bachman, education manager for the ACFE. 'That level of trust is often betrayed.</p><p>Sometimes employees start taking advantage of the fact that the boss isn't looking and thinks I'm</p><p>doing a great job.' </p><p>The most common types of insider frauds include theft of assets and accounting frauds, but this</p><p>type of crime can also include other categories, such as fraudulent worker's compensation claims.</p><p>'If you're in a no-fault worker's compensation state, as long as they're injured within the scope of</p><p>employment, they can receive compensation for their injuries,' Lougovskaia says. 'That's an area</p><p>where employees could be taking advantage.' </p><p>Employees, managers, and directors have the inside track and understand how a business works.</p><p>That's why they are able to perpetrate so many different types of schemes -- and how they can</p><p>often go undetected. Bachman says that the biggest source of insider fraud against businesses</p><p>involves purchasing and procurement of goods and supplies. Insiders may be buying more goods</p><p>than a business needs and lining their own pockets or paying invoices to an external third party</p><p>for fraudulent orders. Other common schemes, says Bachman, include creating fictitious vendors</p><p>or no-show employees -- who get paid for doing nothing. Accounts payable is another area where</p><p>insiders may be skimming money by taking cash payments and failing to report them or replacing</p><p>today's payments with cash paid at later dates. </p><p>Customers </p><p>Customers can also be notorious for trying to perpetrate fraud against businesses. Whether</p><p>writing bad checks, using stolen credit cards, returning items not purchased from a business, or</p><p>filing fraudulent injury and liability claims, there are a whole host of schemes that customers can</p><p>perpetrate that will cost your business money. </p><p>'This is a very litigious society, so if you own a store or surface where customers walk or you have</p><p>a parking lot, you are susceptible to people claiming they fell and injured themselves,'</p><p>Lougovskaia says. 'If you don't have any surveillance and safety procedures in place, you are</p></li><li><p>susceptible to frivolous liability complaints.' </p><p>False return schemes are another type of fraud that tends to impact retailers. People sometimes</p><p>bring back merchandise from one store to another or they bring back merchandise that has been</p><p>used. 'I've seen frauds where someone walks into a store and bought three pieces of</p><p>merchandise, went out to their car and put the merchandise away, and came back into the store</p><p>and picked the same stuff up and put it in a bag and walked out with it,' Bachman says. </p><p>Contractors </p><p>Businesses are often the target of unscrupulous contractors' overcharging, over billing, kick</p><p>backs, failing to perform contracted work or service, and other actions. </p><p>Some vendors you hire may try to scam you by billing for work they never complete. 'I can come</p><p>into your company to provide carpet cleaning and you give me the alarm code and I come in once</p><p>a month instead of once a week but bill for providing the service once a week,' Bachman says. 'Of</p><p>you can short out services or goods because no one is paying attention. You order 50 chairs and I</p><p>send 45. There are a lot of different ways of doing this.' </p><p>Third-Party Attacks </p><p>A growing number of types of fraud are being perpetrated by electronic means. Hacking,</p><p>slamming (changing your telephone service without your knowledge), phishing (acquiring user</p><p>names, passwords, credit card information), identity theft and other forms of business fraud are</p><p>some of the most difficult to control. More businesses are being held accountable for data</p><p>breaches perpetrated by third parties, as 45 states, the District of Columbia, and some U.S.</p><p>territories now have laws on the books requiring companies to notify potential victims if their</p><p>personal information has been stolen or otherwise compromised. </p><p>How to Protect Your Business against Fraud: How to Detect Fraud </p><p>Given that fraud against your business can impact the bottom line, it's important to set up</p><p>procedures to verify adherence to anti-fraud policies and to detect and deter possible business</p><p>fraud. Lougovskaia says business executives should commit to talking control by developing an</p><p>enterprise-wide, anti-fraud policy that: </p><p>-Verifies that anti-fraud work practices are followed and detects fraudulent activity. </p><p>-Develops written procedures that dictate work processes in critical areas. </p><p>-Institutes checks and balances and divides key responsibilities. </p><p>Below are several ways to deter and detect fraud in your business: </p><p>Employee Tips and Reporting </p></li><li><p>An often overlooked, but excellent way to prevent fraud is to develop an anonymous way for</p><p>employees to report suspected fraud and work practices that lead to fraud. Businesses that</p><p>institute anonymous employee reporting detect fraud earlier and significantly limit financial losses.</p><p>'You could have an anonymous tip box,' Lougovskaia suggests. If you do opt for a tip box, you</p><p>should take steps to ensure that the process isn't abused to settle personal grudges. One way</p><p>would be to appoint one individual to investigate all claims and ensure that anonymity is</p><p>protected. </p><p>Internal Audits and Surprise Audits </p><p>Work processes, inventories, and accounting should be subject to regularly scheduled and</p><p>announced internal audits. In addition, unscheduled -- or surprise -- internal audits also should be</p><p>conducted. Work processes, inventories, and accounting can be altered in advance of regular</p><p>audits, but knowing a surprise audit may occur removes temptation and increases the chance for</p><p>fraud detection. </p><p>External Audits </p><p>At a regular interval, external auditors should be employed to review company accounts,</p><p>contracts, inventory and work processes, Lougovskaia says. Depending on the size of your</p><p>business and whether it is a publicly-held enterprise, this may be required by law. Thus, it makes</p><p>sense to set up external audits early in the history of your business so compliance with applicable</p><p>laws and regulations can be achieved as your business grows. </p><p>How to Protect Your Business against Fraud: How to Deter Fraud </p><p>There are ways to deter fraud. One of the most important steps a business can take is to create a</p><p>system of awareness at the top level of management. 'Never think that it can't happen here,'</p><p>Bachman says. 'Create a level of awareness throughout the organization that we're watching for</p><p>it. Make it clear in terms of deterrents that, if we catch it, we're going to prosecute, both criminally</p><p>and civilly.' Civil action may be needed because people who have profited from ill-gotten gains</p><p>may not have the cash on hand to return - they may have bought items, such as fancy cars or</p><p>jewelry. </p><p>Written procedures are necessary to develop internal consistency and to insure adherence to</p><p>anti-fraud work practices and policies. At a minimum, the business should take the following</p><p>steps: </p><p>-Hiring practices and background checks. Background checks should be a precondition to</p><p>employment. The business should secure written permission to conduct such investigations,</p><p>which should include criminal background investigation, verification of education, right to work,</p><p>licensure and past employment, Lougovskaia says. A credit check should be performed on</p><p>employees who will handle cash or inventory. </p></li><li><p>-Cash and receivables and accounting. A written cash and receivables handling policy should</p><p>accomplish two goals. It should train employees to spot bad checks, counterfeit currency, and</p><p>stolen credit cards and insure proper accounting. 'The policy should address possible discipline</p><p>for cash shortages and failure to strictly follow handling guidelines,' Lougovskaia says. The policy</p><p>should address the use of customer-provided information and the handling of vital customer data. </p><p>-Inventory handling and tracking. A written inventory policy covers sales stock and company</p><p>equipment. Pilferage is often an 'entry level' criminal enterprise. Contractors and employees</p><p>engaged in this activity often perceive a weakness in inventory controls as an indication that fraud</p><p>will not be detected. 'What happens to those items from the time they get off the truck to the time</p><p>they hit the store shelves?' Lougovskaia says. Put those procedures in writing and give them to</p><p>employees. </p><p>-Contract and invoice reviews and procurement. Regular reviews of accounts payable</p><p>invoices, purchase orders, and payments can eliminate various types of fraud. It is important for</p><p>small businesses to be able to verify that contractors have performed the work that they bill for --</p><p>before paying the invoice from that contractor. 'You need to outline billing practices with your</p><p>contractors and require them to itemize billing, including the names of employees involved and</p><p>listing a quarter hour itemization for each task,' Lougovskaia says. 'You need to provide better</p><p>oversight and you need to have it in writing.' </p><p>-Critical data and corporate information. These days, every business that keeps sensitive data</p><p>-- whether about customers or employees or the company -- need to have written data handling</p><p>policies. These policies should spell out who has access to vital information, passwords, account</p><p>numbers, databases, etc. Document retention policies should include scheduled, mandatory</p><p>shredding of certain documents containing employee information or corporate data. Use</p><p>confidentiality agreements and non-compete agreements for key employees. </p><p>-Customer returns. Customer returns can be a significant source of fraud. Since most state</p><p>consumer laws require a posted customer return policy, it makes sense to develop a written</p><p>return policy that will eliminate fraud risk, Lougovskaia says. Elements of your policy might include</p><p>that you require returns to take place where the item was purchased, require a receipt, and do not</p><p>issue cash refunds for credit card or check purchases. </p><p>-Visitor/customer injuries. There are ways of deterring fraudulent customer claims of accidents</p><p>or incidents involving your business property. Retail establishments should consider installing</p><p>video surveillance systems and having a handheld video camera ready in the event a customer</p><p>falls on the premises to protect your business. If your business is not a retail establishment, you</p><p>might consider requiring visitors to sign in and wear clearly identifiable badges. Tracking customer</p><p>claims of injury via incident reports, and training employees to create reports immediately, cuts</p><p>down on fraudulent injury claims. </p><p>-Internet, e-mail, laptops, cell phones, and storage devices. Clearly defined policies need to</p><p>establish that Internet access and e-mail remain the property of the business for business</p></li><li><p>purposes. Eliminate all employee access to non-work e-mail and Internet sites, Lougovskaia says.</p><p>Written guidelines addressing the use of business laptops, cell phones, and storage devices will</p><p>reduce the possibility of critical corporate and customer data being lost or stolen. </p><p>How to Protect Your Business against Fraud: Creating Checks and Balances </p><p>Internal controls are one of the great fraud deterrents. Internal controls involve the processes by</p><p>which a...</p></li></ul>