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The information in this e-newsletter is for general guidance only, and does not constitute the provision of legal advice, tax advice,
accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used
as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or
taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular
situation.
The author of the tax articles in this e-newsletter did not intend nor write the advice to be used to avoid any penalty imposed by a
taxing authority, nor may any user/recipient of this document use this document's written tax advice for that purpose. This document's
tax advice was written specifically to support the promotion or marketing of the transaction/matter addressed by the written tax advice.
Therefore, any user/recipient of this document should seek an independent tax professional's advice regarding the user/recipient's
particular circumstances.
The information is provided "as is" with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and
without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for
a particular purpose.
The information in this e-newsletter is for general guidance only, and does not constitute the provision of legal advice, tax advice,
accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used
as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or
taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular
situation.
The author of the tax articles in this e-newsletter did not intend nor write the advice to be used to avoid any penalty imposed by a
taxing authority, nor may any user/recipient of this document use this document's written tax advice for that purpose. This document's
tax advice was written specifically to support the promotion or marketing of the transaction/matter addressed by the written tax advice.
Therefore, any user/recipient of this document should seek an independent tax professional's advice regarding the user/recipient's
particular circumstances.
The information is provided "as is" with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and
without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for
a particular purpose.
| Serving the Central Pennsylvania area since 1981 |
| Robert A. Romako, CPA |
| KEEPING HANDS OUT OF THE COOKIE JAR: SIMPLE STEPS TO DETER EMPLOYEE THEFT |
According to some industry experts, the value of company resources lost to employee theft
may approach 5% of a company’s gross revenues. Before undertaking expensive forensic
audits to discover theft, or implementing burdensome additional controls, here are a few
inexpensive ideas to help deter theft.
First, have an anonymous reporting program in place. Most frauds are uncovered through
reporting by other employees who notice suspicious behavior. To encourage reporting, keep it
easy and protect the informer. Fraud hotline setups are available from commercial providers, but
companies can set up a similar service by establishing a separate e-mail address that is readable
only by the owner or trusted management. Studies show that companies with anonymous
reporting programs detect fraud nearly twice as fast as those without, and lost dollars are half the
average as well.
Next, conduct surprise audits. Surprise audits mean more than counting the petty cash – they
are designed to uncover the types of fraud that employees can perpetrate depending upon their
job within the company. Here are some examples:
• Compare materials billing versus shipping addresses. Contractors often arrange for
materials to be delivered directly to the job site. Scanning the “deliver to” address of a sample of
invoices may disclose diversion of company purchases to personal residences or fake
addresses. This type of fraud can be accomplished by field personnel who may have the
authority to order materials.
• Review charges on company credit cards. It is easy for anyone who is permitted to use
a company credit card to charge personal purchases. Not only is it a good fraud deterrent to
require receipts for all card charges, the IRS will want to see the supporting receipts if you are
selected for audit. If one person consistently reviews all charges, consider rotating the approval
responsibility to another individual to help detect a possible collusion problem.
• Review automatic payment programs. One fraud involved an automatic payment from
the operating cash account to make payments on a credit card. The problem was the credit card
was not the company’s – it belonged to the fraudster. The accounting for the charge was posted
to an innocuous account having a high number of transactions, so it went for several years
before being noticed.
• Drop by the warehouse at off hours. Many employees may have keys to the warehouse
– can they all be trusted? If you notice higher materials costs, discrepancies in inventory, even
less scrap around the shop, it may be a sign that inventory is walking out the door. Pay a few
surprise visits and observe any unusual activity, and you may find the source of your problem.
Finally, one of the easiest controls you can implement may be the most revealing. Instead of
using the office mailing address, arrange to have your company’s bank statements sent to
the owner’s home address. This way, no one else can tamper with the statements before the
bank reconciliation is performed. Schemes involving replacing cancelled checks, pulling certain
checks, changing the reported transactions, hiding certain transactions, etc. may be discovered.
Since it is often the most trusted employee who is involved in the fraud, the smart owner takes
steps to protect what is theirs at all levels within the company. To discuss how you may improve
your company’s controls, or for other ideas on how to check for fraud within your business, simply
give me a call.
may approach 5% of a company’s gross revenues. Before undertaking expensive forensic
audits to discover theft, or implementing burdensome additional controls, here are a few
inexpensive ideas to help deter theft.
First, have an anonymous reporting program in place. Most frauds are uncovered through
reporting by other employees who notice suspicious behavior. To encourage reporting, keep it
easy and protect the informer. Fraud hotline setups are available from commercial providers, but
companies can set up a similar service by establishing a separate e-mail address that is readable
only by the owner or trusted management. Studies show that companies with anonymous
reporting programs detect fraud nearly twice as fast as those without, and lost dollars are half the
average as well.
Next, conduct surprise audits. Surprise audits mean more than counting the petty cash – they
are designed to uncover the types of fraud that employees can perpetrate depending upon their
job within the company. Here are some examples:
• Compare materials billing versus shipping addresses. Contractors often arrange for
materials to be delivered directly to the job site. Scanning the “deliver to” address of a sample of
invoices may disclose diversion of company purchases to personal residences or fake
addresses. This type of fraud can be accomplished by field personnel who may have the
authority to order materials.
• Review charges on company credit cards. It is easy for anyone who is permitted to use
a company credit card to charge personal purchases. Not only is it a good fraud deterrent to
require receipts for all card charges, the IRS will want to see the supporting receipts if you are
selected for audit. If one person consistently reviews all charges, consider rotating the approval
responsibility to another individual to help detect a possible collusion problem.
• Review automatic payment programs. One fraud involved an automatic payment from
the operating cash account to make payments on a credit card. The problem was the credit card
was not the company’s – it belonged to the fraudster. The accounting for the charge was posted
to an innocuous account having a high number of transactions, so it went for several years
before being noticed.
• Drop by the warehouse at off hours. Many employees may have keys to the warehouse
– can they all be trusted? If you notice higher materials costs, discrepancies in inventory, even
less scrap around the shop, it may be a sign that inventory is walking out the door. Pay a few
surprise visits and observe any unusual activity, and you may find the source of your problem.
Finally, one of the easiest controls you can implement may be the most revealing. Instead of
using the office mailing address, arrange to have your company’s bank statements sent to
the owner’s home address. This way, no one else can tamper with the statements before the
bank reconciliation is performed. Schemes involving replacing cancelled checks, pulling certain
checks, changing the reported transactions, hiding certain transactions, etc. may be discovered.
Since it is often the most trusted employee who is involved in the fraud, the smart owner takes
steps to protect what is theirs at all levels within the company. To discuss how you may improve
your company’s controls, or for other ideas on how to check for fraud within your business, simply
give me a call.
JUNE 2008
| Robert A. Romako, CPA Phone:717.774.3047 |