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2014-11-21 / Legals

Corporate fraud protectionA

look at small businesses and common fraud schemes
Certified Fraud Examiner Wessel & Company

Gearhart Gearhart For those who own or manage a business and are getting ready to wrap up the year 2014, do yourself a favor and take a few additional precautions this year. The Association of Certified Fraud Examiners estimates that 5 percent of an organization’s revenue is lost due to fraud with the average loss of $145,000. This number can only be estimated because much of fraud - millions of dollars each year - goes undetected. Fraud is often concealed with false journal entries, destruction of bank statements, or other concealment methods.

Managers or business owners often do not take that extra step to verify the legitimacy of a financial transaction. Maybe they trust their employees and would never suspect them of stealing. Maybe they think their tax accountant reviews the records and would discover any wrongdoing. Or maybe they simply do not want to take the time to perform the tedious task to monitor the accounting records. These excuses should not be acceptable.

Take action now and implement some changes. There are several fraud schemes that we see over and over again. With each of these schemes, there are easy procedures that could be performed to detect the fraud.

• Fraud Scheme: Unauthorized checks

Concealment: A false payee in the accounting system

Detection Method: Gain online banking access or obtain a bank statement, including copies of checks, directly from the bank. Verify the payee, date, amount, and description on the check agrees to the accounting records. If the purpose is unclear, ask for an explanation.

• Fraud Scheme: Unauthorized credit card charges

Concealment: False account coding, destruction of credit card statements and receipts

Detection Method: Obtain the credit card statements. Review transactions noting the dates and location of the charges. For gas purchases, use a timesheet to verify the purpose for the travel cost. For supplies purchases, ask for the receipt. If no receipt is provided determine if the volume of the supply purchases is reasonable.

• Fraud Scheme: Payments to a shell company

Concealment: False vendor documents, altered inventory reports Detection Method: Obtain a summary of payments by vendor. If electronic, sort by amount. For any unusual names or high dollar amounts, search the internet for vendor information. View the satellite image of the address to verify the location is not a residence.

The detection methods do not take a rocket scientist to figure out, but detection can be difficult when there is a lack of records or the records are disorganized. If you do not require employees to use timesheets, maintain mileage reports, provide receipts or invoices for all purchases, or keep records organized, then the probability of detecting fraud is minimized, but not impossible. Additional techniques and help from a Certified Fraud Examiner may be required to obtain supplementary evidence.

Make sure you are not a victim of fraud. Consider the mildly tedious task of monitoring the accounting functions over the high cost of fraud.

Wessel & Company is a full accounting firm located in Johnstown, PA .

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