Fraud and Forensic Investigation Archives | Page 3 of 4

Protect Your Non-Profit From Fraudsters

July 19, 2012/in Fraud and Forensic Investigation/by revel

Little do they know, he’s going to pocket that money.

A common problem for churches and not-for-profit organizations is embezzlement, which occurs because decision makers are often times too trusting, internal controls are lacking, and even the simplest checks and balances are not in place. Because these organizations want to welcome and trust everyone, fraudsters can easily take advantage of their goodwill. Most fraudsters place themselves in multiple groups in a church and gain the “trust” of fellow members.

Once the trust is there, fraudulent activity is easier to pull off. I have worked with several churches and not-for-profits that have had the same answer as to why they were defrauded: “I never thought he/she would steal from us”, “we trusted him/her”, “She is a good person”, “outstanding Christian”.

Be sure to not give church group members too much access to money and other valuables without church staff present.

Employees working for not-for-profits and church organizations have also been known to commit fraud. According to the Association of Certified Fraud Examiners, in 2012 the median loss for not-for-profits from fraudulent activity was $100,000. There are many factors that drive people to commit fraud. Red flags include:

Extraordinary medical expenses of the employee or a family member
Loss of spouse’s employment
Financial struggles of children
Divorce Gambling problems

It’s important to know what may be going on in the lives of personnel that have the potential to appropriate assets of your business for their personal use. Remember the importance of internal controls! Things like segregating job duties, rotating job duties, and instituting a system of checks and balances can all help deter fraud. Overall donations and contributions have been down the past couple years, the last thing a not-for-profit organization needs is embezzlement to occur.

If you are concerned about fraud in your not-for-profit, contact Kit Powell

Kit Powell
Certified Fraud Examiner
231.924.8035
kitp@hscompanies.com

Avoid Bad Hires With Background Checks

July 19, 2012/in Fraud and Forensic Investigation/by revel

eliminate problem employees with background checks

Background checks can help eliminate potentially hazardous candidates.

Criminal background checks are a first line of defense that businesses can use to weed out potential fraudsters and problem employees, but many choose not to take this simple first step. You don’t need to be a detective to run a background check; it can be as easy as creating a profile on the state website and running reports as needed.

The first thing to consider is whether you want to run a state or national background check. If you run one for just the State of Michigan, any crimes committed elsewhere will not appear in the search results. Also, keep in mind, the database is only as accurate as the information fed to it. If someone was convicted of a crime yesterday, but it hasn’t been entered in the system yet, you won’t see it in the results.

You will want to make sure to consider hiring best practices and industry-specific requirements when implementing background checks so you don’t set yourself up for lawsuits. Define ahead of time what types of crimes would cause you to retract an employment offer, and be consistent in enforcing your policy. Although there is no defined law regarding when you may run a background, it’s best to do so after you’ve made a job offer. Be sure to define in the offer that employment is contingent upon passing the background check. The HR specialists at H&S can help you develop a policy or even facilitate running the checks.

Download our free background implementation list

To learn more about implementing a background check policy contact Ashley Clonan at 616.884.7949.

Ashley Clonan
Marketing Coordinator
616.884.7949
ashleyc@hscompanies.com

After An Employee Embezzles…

July 18, 2012/in Fraud and Forensic Investigation/by revel

Tips for preventing fraud, as well as, the top ways fraud is typically detected.

Embezzlement has been the number one financial crime for the past 30 years. If an employee embezzles, then the employer has already lost. Of those losses the employer suffers a financial loss, a loss of trust, and additional revenue loss from litigation matters that follow the embezzlement. To avoid embezzlement embarrassment, employers have to move quickly, as the financial impact will likely have a greater effect than was first suspected. The employer has to stop the damage quickly and conduct a fraud examination. If stockholders are involved then the employer has the responsibility to investigate and recover the losses. If you have an embezzlement issue come up, follow these three steps in order:

Contact Legal Counsel and Your Insurer

Contacting legal counsel is an important first step because sometimes the employee’s rights can be violated even though they were the one who committed the crime. Contact your insurer also because failure to do so could void potential losses from being covered.

Secure Data

A fraud auditor will know what information and data to secure and back up. A good start for an employer is to do the following:

Create a mirrored hard drive of the employee computer
Secure electronic backups in the network and local drives of original data
Secure CDs, disks, thumb drives, etc.
Search the offending employee’s desk and office for any sensitive information (review handbook policies with attorney first)

Deal with the Employee

Management should follow their legal counsel’s advice in dealing with the employee as swiftly as possible.

Remember, fraudulent activities are easier to prevent than to detect. Make sure you have a plan in place, and know what to do should fraud occur in your business.

To learn more about preventing fraud in your business, contact Kit Powell

Kit Powell
Certified Fraud Examiner
231.924.8035
kitp@hscompanies.com

Phishing from ‘The Cloud’

July 16, 2012/in Fraud and Forensic Investigation/by revel

An automated phishing-style fraud scheme was recently discovered.

According to an article on PCWorld Business Center, a cybercriminal ring was discovered using an advanced cloud-based fraud system that targeted wealthy people throughout the world. Although the actual amount defrauded is not known, the article estimates in ranges from $75 million to $2.5 billion.

The fraud started with emails designed to look like they came from a recipient’s bank. After the message was downloaded, malware was installed on the victim’s computer that allowed personal information to be stolen. The amount of automation, multiple systems, and the cloud computing nature of the attacks make them so unique.

Remember to never open emails unless you are absolutely sure of their origin. If you are concerned about a message, be sure to contact your bank and ask if they really sent an email.

To learn more about the attacks read, Cybercriminals Build Massive Banking Fraud System in the Cloud.

Expense Report Embezzlement

July 6, 2012/in Fraud and Forensic Investigation/by revel

If you are concerned that fraud may be occurring in your place of business, a good first place to check is in the area of employee expense reimbursement. Employees that state false information on their expense reports are likely to be committing some other type of fraud. There are four types of expense reimbursement fraud, which are: mischaracterized expenses, overstated expenses, fictitious expenses, and multiple reimbursements.

Mischaracterized expenses are the most common and occur when the employee seeks reimbursement for ineligible non-business expenses. A common example is lunch with a friend that is classified as a business development lunch.

Overstated expenses occur when employees overstate their expenses to receive top dollar on their expense report. This often occurs when a business does not require documentation be attached to expense reports. Even when support is required, employees can still alter the supporting documents by photocopying receipts, obtaining blank receipts from vendors, or generating phony ones on a personal computer.

Fictitious expenses are expenses that were never incurred or were paid by another person. This often occurs when multiple employees go on the same business trip and all employees state they paid for the same expenses.

Multiple reimbursement schemes are when expenses are reimbursed two or three times for the same expense. A common scheme is an individual paying for a trip on the company credit card and keeping the receipts. The individual will then enter the receipts on his/her expense report to be paid for again.

If an employee commits expense reimbursement fraud they may not commit other types of fraud, however, studies have shown that a correlation exists. If you suspect fraud is occurring within your organization, these are the employees you may want to scrutinize first.

If you are concerned about fraud in your business, contact Kit Powell today.

Kit Powell
Certified Fraud Examiner
231.924.8035
kitp@hscompanies.com

Background Check Implementation List

June 28, 2012/in Fraud and Forensic Investigation/by revel

Click here to download H&S Companies’ list of things to consider when implementing a background check.

Occupational Fraud Doesn’t Just Strike Small Business

June 27, 2012/in Fraud and Forensic Investigation/by revel

Corruption schemes are the most popular form of fraud in governmental units.

Occupational Fraud doesn’t just strike small businesses; governmental units are susceptible as well. In the Association of Certified Fraud Examiners’ Report to the Nations, they found that corruption schemes, such as kickbacks, were the most popular form of fraud among government and public administration positions. Billing schemes, such as using fake companies to send bills to governmental units, stealing inventory, skimming money, and expense reimbursement schemes were the next most popular.

Those in government positions need to remember to put fraud controls in place. Rotating financial duties among employees, creating a system of checks and balances, and assessing and protecting areas susceptible to fraud are all important parts of preventing it from happening. To learn more, contact Kit Powell today.

Kit Powell
Certified Fraud Examiner
231.924.8035
kitp@hscompanies.com

In The News: Former Assistant Principal Pleads Guilty to Embezzlement

June 15, 2012/in Fraud and Forensic Investigation, Locations & Services/by revel

Simply segregating duties between various team members can help reduce the chance of fraud occurring.

According to an article in theDetroit Free Press, Samuel Craig, a former assistant principal, was convicted of embezzling more than $36,000 from his union.

Craig was able to embezzle the money in his role as treasurer of his school’s union. He used blank, pre-signed checks, which officials believed would be used to pay bills, for his own use. Additionally, Craig opened a debit card linked to union funds and authorized electronic fund transfers to his personal bank account.

This story highlights the importance of implementing procedures to prevent fraud. Officials should review financial statements regularly, rotate financial duties if possible, and segregate duties to prevent one person from having too much power.

To learn more about fraud in business, read:
Small Businesses & Fraud – What you need to know
Fraud Happens. Learn the Facts.

Source: Former Highland Park assistant principal pleads guilty to embezzling from union by Melanie Scott Dorsey

Fraud Happens. Learn the Facts.

June 4, 2012/in Articles, Fraud and Forensic Investigation, Locations & Services/by revel

Even your most trusted employee could be tempted to commit fraud under the right circumstances. Make sure you know how to prevent that from happening.

We’ve written a lot about the fact that fraud happens in small businesses. Often times people think, “it could never happen to me”, but it does and recovering the money is no easy task.

According to the ACFE’s Report to the Nation, more than 3/4s of the frauds reported in their study were committed by employees who worked in one of the following six departments: accounting, operations, sales, executive/upper management, customer service, or purchasing. In 2012, employees were found to be the fraudsters 43% of the time, managers 34.3%, owners/executives 18.5%, and others 4.2%.

Ensuring that you have a system of checks and balances between departments and between position levels can help deter fraud. Just because someone is your most trusted employee doesn’t mean they couldn’t or wouldn’t commit fraud. According to the report, fraud by employees resulted in a median loss of $50,000; managers, $150,000; owners/executives, $373,000; and others, $86,000.

And remember, there could be more than one employee involved in the scheme. The study found that in 2012, 32.9% of US cases involved two or more perpetrators, which resulted in median losses of $175,000. Try to segregate duties as much as possible or rotate job duties to try to deter fraud schemes.

To learn more about ways to prevent fraud in your business contact Kit Powell, Certified Fraud Examiner.

Kit Powell
Certified Fraud Examiner
231.924.8035
kitp@hscompanies.com

Small Businesses & Fraud – What you need to know

May 16, 2012/in Fraud and Forensic Investigation/by revel

Don’t let a fraudster break your bank. (Photo Credit: office.microsoft.com)

In the 2012 Report to the Nations, the Association of Certified Fraud Examiners surveyed their membership and reported on 1,388 cases they investigated. The findings shed light on the most prevalent forms of fraud across the world (this survey provides information from nearly 100 countries on six continents), and we feel can help guide business owners in what they should be watching for in their own companies.
One of the more disturbing findings, showed that small businesses suffered the largest median losses. According to the survey, 49% of organizations that fell victim to an occupational fraud scheme did not recover any money. Furthermore, 87% of the perpetrators had never been charged or convicted of a fraud-related offense. 87% of cases in the study were asset misappropriation schemes, which are things like falsifying wages, overstating expenses, taking multiple reimbursements, stealing cash on hand, etc.
Preventing fraud, or catching it early, should be a small business owner’s goal. We understand implementing such systems can be costly and overwhelming but they are worth it. Here are three easy things you can do to help prevent fraud in your organization:

Implement a confidential employee tip line. According to the survey, employee tips are the most common way occupational fraud is detected. Make sure your employees have a safe way to report suspicious activity should they see it.
Educate employees and managers on what constitutes fraud. Most people want to do the right thing, make sure they know what that is.
Assess the areas in your organization that are the most susceptible to fraud, and then work on investing further to protect those areas.

For more information and tips on preventing fraud, check out these additional resources:

Happy (Fraudulent) Holidays By Kit Powell
Do You Think Your Non-Profit is Immune to Fraud? Thing Again. By Kit Powell
Case Study: Ex-Marriot Worker gets 1 year, 1 day in jail for embezzlement

A simple fraud risk assessment — performed by Kit Powell, Certified Fraud Examiner — will give you a detailed report with recommendations on how to strengthen internal controls to prevent fraudulent activity. Contact Kit today to schedule an appointment for your fraud risk assessment.

231.924.8035
kitp@hscompanies.com