Creating an Anti Fraud Environment

Richard D. Krieger, CPA/CFF, CFE, CIA

Fraud incidents are found in small businesses, large corporations, not-for-profits and governmental entities.  There is not a sector of the marketplace that is immune to the casualties of fraud.  Today, fraud and abuse is costing organizations in the United States almost $600 billion annually. And sadly, the fraud and abuse is committed by people who are trusted within their organizations. 

To deter fraud, it is important to create an anti-fraud environment. Employees need to know they are being monitored and must believe they will be caught and punished.  Taking the first steps toward creating an anti-fraud environment requires employers to assess current conditions. Employers must have the answers to the following questions: 

• What could go wrong?
• What has happened in the past?
• Can we prevent it?
• Can we catch it right away?
• Can we handle it? 

With these answers in place, organizations can then begin to convey anti-fraud expectations and information to employees.
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Kickbacks Hurt

By: Benjamin E. Spirk, CPA

Is it ok when the purchasing agent at a large warehouse accepts a free radio in exchange for a contract with a box tape salesman? 

How about a project manager at a general contractor that signs a change order with a subcontractor on a construction job in return for a new deck on his house? 

Kickbacks result from any activity where something of value kept off of the books and records is given to persuade a group or a person to agree to a product or service.  Kickbacks are often detrimental to companies.  The example of the box tape salesman giving a free radio to the purchasing agent at a large warehouse may sound pretty innocent.  What if I told you that the box tape contract was the highest priced contract and would cost the warehouse company over $40,000 more a year than the same tape from a different vendor?  Sounds like a pretty expensive radio!

Detecting kickbacks can be tough since they are usually created in secret between a third party and a dishonest employee.  One simple suggestion is to have a second individual, especially someone with an ownership stake in your company, review and scrutinize every contract and agreement that is signed by the company.  Another idea is to require purchasing agents and/or management to submit their personal finances in writing on an annual basis.  Then you may identify red flags if their vacation home in the Bahamas and their new exotic sports car contradict their income. 

Whether it is a trip to Disney World or cold hard cash, accepting kickbacks is fraud and hurts your company.

FERA Is Example of Commitment to Protect Funds

In an attempt to ensure the government can recover taxpayer dollars lost to fraud and abuse, the recently approved Fraud Enforcement and Recovery Act of 2009 (“FERA”) expands the grounds for liability under the False Claims Act (“FCA”). 

Signed into law by President Obama on May 20^th, 2009, the principal objective of FERA is to expand the reach of federal law and increase funding for federal agencies to combat the types of financial frauds that contributed to the current subprime and economic crisis, and to recover taxpayers’ money lost to these frauds. 

The FCA was amended by FERA, in part, due to court decisions that undermined the intended scope of the FCA.  Specifically, FERA amends the FCA by extending the FCA to a wider range of transactions; reducing the intent required to establish liability; permits non-employees to bring retaliation claims; broadens the reverse false claims provision; and facilitates greater showing of investigation materials by the Department of Justice. 

 Since a substantial portion of the funds expended in an effort to stabilize our economy are being dispensed through a variety of government contracts and grants, FERA’s FCA amendments are directed, in part, at protecting these funds.  Congress has shown a commitment to reverse the current economic crisis and prevent, through the various stimulus programs, a repeat of this crisis in the future.  FERA is another example of this commitment.

Identity Theft – The Problem is Huge…and Growing

By: Justin M. Kniepman, CPA/CFE

According to U.S. Department of Justice statistics, identity theft is now passing up drug trafficking as the number one crime in the nation.  Studies estimate the victim population now at 15 million annually.  Identity theft takes many forms –  thieves may rent an apartment, obtain a credit card, or establish a telephone account in your name.  While some victims can resolve their problem quickly, others spend hundreds of dollars and many days repairing damage to their good name and credit record. 

Here are Some Simple Preventative Measures:

• Treat your mail carefully. Deposit outgoing mail in post office collection boxes rather than unsecured mailboxes. If you are going to be out of town, arrange for someone to collect your mail.
• Shred documents that contain personal or account information rather than simply throwing such information in the trash. Lock up personal information at home.
• Install anti-virus and anti-spyware software on your computer and download updates regularly.
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$49,000. Average Amount Companies Lose Each Year to Expense Reimbursement Fraud

By: Richard D. Krieger, CPA/CFF, CFE, CIA

This statistic is from the Association of Certified Fraud Examiner’s (ACFE) 2008 Report to the Nation on Occupational Fraud and Abuse. The report also notes that falsifying expense reports is also one of the easiest ways to defraud an organization. 

Because expense reimbursement reporting is one of the most common methods businesses use to refund their employees for business expenses incurred out-of-pocket, its abuse is alarming. Fortunately, you can limit its losses from expense reimbursement fraud by implementing some simple controls. 

• Develop and maintain an expense reimbursement policy detailing the reimbursement process and the types of expenses your organization will reimburse. The policy should be regularly updated and communicated to employees. 
• Always require original receipts rather than photocopies or print-outs. Original receipts are more difficult to forge or alter than are photocopies. 
• Require that all expense reports be approved prior to payment. Review and approval should be performed by a supervisor who is in the same department as the employee requesting reimbursement. 
• Establish a policy which details the timeframe in which expense reports may be submitted (i.e., 60 or 90 days). Do not accept any expenses with dates older than the policy allows. 
• Implement the use of organization credit cards to reduce the possibility of reimbursement of fraudulent “high dollar” items that have been paid in cash. Additionally, develop, communicate, and enforce consequences for those who inappropriately use the credit cards for personal purchases.

Don’t be a statistic.