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The Rot Spreads - Business Fraud - Jan 27, 2010

Posted by: David Kirkup in Articles

Desperate times lead to illegal measures

A former bookkeeper for a small insurance broker in Georgia was recently charged with stealing more than $1 million to pay for trips and shopping sprees. Credit card bills showed she traveled to Disney World, New York, Washington, Honolulu, New Orleans, San Francisco, Lake Tahoe, and (of course) Las Vegas. She apparently under-booked revenue invoices to create a secret fund of excess cash, and then forged checks to siphon off the funds over a period of five years.

There were more red flags here than the watch-listed "Christmas Terrorist’s" cash-only, one-way, no luggage, near disastrous plane trip from Nigeria to Detroit. But you have to ask…what were the owner’s thinking? Probably that she was a gem, and she has “never taken a sick day – ever”. How can $1 million disappear in a business that probably bills no more than $ 3 - 5 million a year?

PriceWaterhouse Cooper has conducted an annual study on economic crime for the past ten years. A third of the participants reported suffering an economic crime in the last year – theft and accounting fraud being the most common and seeing the sharpest rise. The rise in fraud stems from a mixture of increased opportunities and growing incentives. Companies have reduced the number of employees who monitor workers at a time when employees are more tempted to break the rules because their living standards are eroding and their jobs are looking shaky. Economic crime has dismal consequences for everything from company morale to financial performance: a quarter of companies that reported accounting fraud believed it had cost more than $1 million. What can be done to stamp out the problem? PWC believes that senior managers should play a more active role in combating the problems. Owners and senior executives are apparently much less likely to notice economic crime than lower level employees. More realistically most companies should consider hiring a part-time CFO. In many cases, for less than the cost of the monthly phone bill, a B2B CFO® can help deter and prevent economic crime from taking place. So, what should the small insurance broker have done to prevent this $1 million calamity – which calls into question the integrity, business savvy, professionalism and continuity of the firm?

A multi-stage approach would focus on internal control, on regular review of banking records and reconciliations, on regular dashboards for key metrics, on questioning revenue levels and low profit margins and benchmarking against industry standards. The simple presence of an outside CFO can often be enough to deter opportunistic attempts to steal company cash.

To discuss your business and dvelop a fraud prevention plan, call David Kirkup – Partner at B2B CFO® on 404 348 0326 or dkirkup@b2bcfo.com.