Fraud Prevention

When it comes to financial fraud, the best prevention is education. The Royce CPA Firm can come to your business or nonprofit and study how your staff is handling finances, then make recommendations to prevent fraud or one person from having too much control.  We can also conduct seminar education sessions, teaching employees about fraud and how to detect it.

Detection

When accounts don’t match up or don’t make sense, or when suspicions arise, the Royce CPA Firm can discreetly come in to review the accounts. We use software to analyze patterns, do a lot of research into vendors and companies who interact with the business, and examine receipts.  Crystal Royce is a Certified Fraud Examiner and has found instances of fraud from $10,000 to over $200,000.

There are two main types of detection cases:

Employee embezzlements usually involve some discrepancies in the accounts and some suspicions regarding an employee.  An auditor is then called in to review the finances and find an answer for the discrepancies.

Partnership disputes usually involve two business partners in the middle of  dispute.  The partner who doesn’t manage the finances will then call in an auditor to be sure that the partner in charge of the finances is on the up and up.

Prevention Tips:

After being contracted to review a company’s books due to discrepancies in their accounting, I discovered that a trusted employee of over a decade, their office manager, had been secretly embezzling hundreds of thousands of dollars from the bank accounts. The company, who had recently expanded, increased the office manager’s responsibilities, allowing her more access to company funds with little to no supervision.

Unfortunately, situations like these are all too common in today’s businesses. Regardless of dependability or moral turpitude, employees in precarious financial situations are often tempted. The following will teach you what to look for, what to do if you have a problem, and how you can prevent theft from happening in the first place.

What to Watch For:

1. The individual presents you with erratic and inconsistent reporting (slow to produce reports, reports differ each month, etc.).
2. The individual displays defensive or aggressive behavior when asked about your association’s finances (i.e., answering your question with another question, closed body language, changing the subject, not returning your emails or calls, etc.).
3. In addition, they will often display control issues such as getting to work early, staying at work late after everyone has left the office, and/or wanting to do everything themselves. 4. You start questioning how the individual appears to be “suddenly” living beyond their means like talking about weekend casino trips, buying new cars, taking people out to lunches and dinners, and “showing off’ new clothes.

What to Do:

1. Do not alert the individual to your suspicions.
2. If you have an accountant that works outside of your association, have them review your records and to see if there are any discrepancies.
3. If you are still concerned with the lack of accountability from the person who is in control of your association’s finances, consider contacting a Certified Fraud Examiner or a Certified Public Accountant with experience in internal controls and fraud investigations.

How to Prevent Problems:

1. Read bank statements and reconciliations monthly. Don’t be afraid to ask questions.
2. Keep a close eye on your petty cash.
3. Regularly perform analytical reviews on financial information as part of your checks and balances.
4. Require mandatory vacations with job rotations for all accounting staff.
5. Be sure that those handling your books actually know what’s expected of them and have the education, skills and abilities to perform their jobs.