The Association of Certified Fraud Examiners recently issued its Report on Fraud to the Nation for 2014. The report cites three major areas of occupation fraud: asset misappropriation, corruption, and financial statement fraud.

 

"Small businesses are both disproportionately victimized by fraud and notably under-protected by anti-fraud controls generally because they lack resources. The most prevalent fraud area is asset misappropriation committed by individuals with access to cash or its equivalent. The perpetrator is generally a male and the longer the fraud lasts the more financial damage is caused."  

 

If you are one of the many business owners that think it can't happen to you, consider this case study:

 

Two businessmen establish a business together and form a partnership. One brings construction ability (Contractor) and the other professional expertise and organizational skills (Professional). Together, they build the business and contribute capital. A few years later, the Contractor wants to have his son (Junior) participate in the business and head up operations. Both original partners agree to sell stock totaling one-third of the business to the junior partner and receive monetary value for their stock. The partners allow Junior to operate the business. Later, Junior obtains an American Express Corporate Card in the name of the company and gives a card to the other partners. Unbeknownst to the Professional, Junior begins using the card to make purchases of a personal nature. (No company policy exists about the personal use of a credit card, so Junior isn't breaking any rules.) The Accounting department questions Junior about his purchases, but he does not respond to them. Over time Junior's expenditures increase significantly. Finally the accounting staff comments to the Professional, in passing, on Junior's activities and his ongoing lack of documentation for expenditures. The Professional is astonished to hear about the monthly expenses Junior is incurring "on behalf of the company." The Professional has a dilemma; does he confront Junior directly, or does he speak with the Contractor about his concerns?

 

What would you do? Would it make a difference if Junior were a family member? Regardless of DNA or professional relationship, the best defense against misappropriation is a good offense.  

 

If you have this problem, or if you want to prevent this problem from developing in your business, obtain...Read More