Can your business survive a $200,000 embezzlement or other fraud scheme? What is that scheme was spread out over 10 or 15 years? Would you notice?

Denise, a $35K a year bookkeeper, for a small trucking company in Alabama is facing several years in prison for embezzling over $550,000 from the company. What did Denise do with all this money? She spent it on cosmetic surgery, new cars, luxury vacations, and jewelry. She was living the high life.

I am sure most of us remember the name Gus Gorman. He was the character played by Richard Pryor in Superman III. How did he get caught? Well, he was stupid. He showed up to work in a new Ferrari. Unfortunately, most fraudsters do not give themselves up like this and many employers may not even notice.

Denise got caught not because of the huge sums of money that she was wiring out of the company account into her own, but because she changed her annual salary from $35K to $38K. When the owner of the company noticed this small discrepancy, it was the beginning of an investigation that kept growing and growing.

Like this trucking Company, most small business lack fundamental controls to prevent and detect fraud. Denise was responsible for all of the accounting and bookkeeping functions except the physical signing of checks. Denise would periodically wire funds from the companies account to her own account. When the bank statements came, she would reconcile them, burying the wire transfers into an expense account and then destroying the evidence – the bank statements. Since the owner did not review the bank statement – he was none the wiser.

What are some steps that you can take to prevent fraud in your business?

1) Education: Educate yourself and your employees. You can do this in house or have a fraud specialist come in and provide the training for you.
2) Internal Control Review: It is critical that all businesses have the proper internal controls relative to their size. Depending upon the size of your company, you may not be able to segregate all of the duties, but you should segregate as much as possible.
3) Cash Reviews/Reconciliations: It is important that cash is reviewed and bank statements are reconciled by a party that is not involved in the other aspects of the accounting process.
4) Pre-screen Employees: Because of the perceived cost and time involved, many small businesses do not properly screen employees prior to hiring them. This could include checking work references, criminal records, credit reports, drug screening or other screening procedures.
5) Balance Trust properly. Ronald Reagan called it, “Trust, But Verify.” Mark Twain said, “Trust everybody, but make sure you cut the cards.”
6) Seek Professional Assistance. As your company grows make sure that you setup the proper controls to safeguard yourself. If you are unsure about how to do this, consult with a professional.

There are two things that must exist for an employee to be driven to commit fraud – motive and opportunity. As business owners, we must set up a proper system of internal controls to limit the opportunity as much as possible.

Motive is difficult to set controls around. According to legend, there was a loyal bookkeeper that has been with a Company a number of years. He requested a $100 per month raise and it was denied. The bookkeeper methodically stole from the Company for the next 20 years, until he retired. His replacement discovered an amazing fact. The retired bookkeeper has pilfered exactly $100 a month.

Do your employees really have jury duty? Did they really come down with Swamp Fever and need to miss a week of work? The normal procedure is to make them provide a doctors not or provide a jury duty notice. This may not be so easy now that an Oklahoma company has begun issuing excused absence notes that appear real.

For a mere $19.95, the Excused Absence Network will issue you up to 5 sick notes from Doctors, Dentists, Emergency Rooms, Jury Duty, Funerals, or Medical Evaluations. While their website states that the notes are for “entertainment purposes only,” how many people are actually using these notes to entertain their supervisors or friends?

MSNBC reported that a New Jersey woman was arrested after supplying one of these notes in order to provide explanation for why she missed traffic court. Unfortunately, court officials called the chiropractor who was listed on the note, and surprisingly, he had never heard of the woman.

A CCH nationwide survey found an absenteeism rate of about 2.3 percent in 2007. That’s down from 2.5 percent in 2006, the highest rate since 2.7 percent in 1999.

In my opinion, this practice is pretty unethical and could be considered fraud if your Company is paying you for your day off. Company founder, John Liddell was quoted as saying, “Millions of Americans work dead-end jobs, and sometimes they just need a day off. People are going to lie anyway. ”

My response to John Liddell and those “millions” of people in dead end jobs, do something to improve your situation and get a better job. The answer is not to lie, cheat and steal. You will never get out of your current situation doing that. The answer is to work on improving yourself and your abilities and move on to a better job with greater opportunities.

I just read an interesting article on the ACFE (Association of Certified Fraud Examiners) website. It discussed two scams that identity thieves are perpertuating to steal from unsuspecting taxpayers.

The first scam involves phishing, which many of us are familiar with. The basic priciple of phishing is that the fraudster sends you an email that looks like it is from someone that you do business with, typically a bank. It ask you to login and takes you to a website that looks identical to the one you are expecting and once you login on their website, they have your username, password, and access to everything underneath. In this particular scam, identity thieves are posing as the Internal Revenue Service and are basically trying to obtain your personal information for their less than honest purposes.

Some important notes on emails from the IRS:
1) The IRS nevers offers refund through email
2) The IRS NEVER sends out unsolicited emails to taxpayers – they always use U.S. Mail to distribute unsolicited notices

Another fraud issue facing taxpayers is someone obtaining their Social Security Number and using it to file for a refund before the actual owner of that Social Security Number files for themselves. In many cases, they visit quickie tax shops where they can get a refund on the spot. Then when the true owner of the social securiy numbers files their tax return, the IRS kicks it back as a duplicate return!

You can read the entire article on the ACFE website.