Finding Employee Theft in Your Company

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top-secret-confidentialHave you ever wondered how and when your employees are stealing from the company? Did you ever wish that you were a fly on the wall, hearing all of the conversations that led up to a group theft? Have you considered secret cameras throughout your workplace to catch employees in the act? Have you wondered what employees are discussing with one another via your internal messaging system? Are you curious about how often employees are playing on the Internet?

It’s no secret that employees routinely steal from their employers. Whether it’s the office supplies taken home for the kids, the extra break while still on the clock, or stealing customer payments, they all constitute theft. Possibly even worse may be the instances of employee disloyalty, such as badmouthing the boss or encouraging good employees to leave the company. Continue reading

Finding Hidden Income and Assets During Divorce

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Divorce and child support cases often are highlighted by disputes over money. One party may be accused of artificially depressing earnings, hiding assets or manipulating the finances to lower the financial obligation to another party. Understanding the complete picture of the finances is necessary before a fair settlement can be reached.

Chicago divorce attorney Jeffrey Knipmeyer, partner at Nottage & Ward, cautions that spouses of individuals hiding income and assets rarely have the financial sophistication to recognize that manipulation is occurring. He adds that during the marriage, they typically have been hands-off, and their only knowledge of the finances depends on what the spouse has communicated. Continue reading

Divorce Issues: Income Available for Support

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The issue of “income available for support” in divorces can be huge, particularly if only one spouse works. The issue gets complex if the earnings of one or both spouses are non-traditional. Regular wages are usually easy to evaluate in a divorce case, while income from businesses, real estate, and other investments become more complicated.

As a general rule, there is latitude in state courts when it comes to income and what is included or excluded for support calculation. There are general rules about the most common forms of income, but they don’t cover every issue and they all have a bit of “gray area” within them.

It is important to know the tricky kinds of income and cash flow that come up in divorces, as well as the varying views of how and why they should be included or excluded. Some of the types of income or expenses that may be treated differently from divorce to divorce and jurisdiction to jurisdiction include: Continue reading

Why Auditors Do Not Find Fraud

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needle-in-a-haystackEven with all the publicity surrounding the issue of financial fraud in the last twenty years, most auditors, investors, and other professionals still do not “get it” when it comes to detecting fraud. Traditional financial statement audits were never designed to detect fraud.

The audit is simply a process by which auditors check the company’s math and application of accounting rules. Auditors examine a very small percentage of transactions. Fraud is rarely detected by financial statement audits because they are not aimed at doing so. However, sometimes fraud is detected by auditors, and they can increase their chances of finding fraud if they are so inclined. There are opportunities during each financial statement audit to find fraud, if only the auditors are diligent. One of the keys to becoming better at detecting fraud is by understanding why auditors so often do not find fraud. Continue reading

Why Fraud Prevention is So Important (and how to get started!)

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Fraud is big business. Companies are at the greatest risk of fraud from their employees, since the employees have easy access to information and assets. We don’t know for sure how much fraud happens, but experts estimate that companies lose 5% of their revenues to employee fraud. At a company with annual sales of $100 million, that means that $5 million is walking out the door each year.

Executives tell themselves that their company isn’t the norm. They do better than average. They certainly haven’t been a victim of internal fraud to the tune of 5% of revenues. The sad truth is that they don’t know exactly how much has been stolen from their companies because they aren’t aware of all the fraudulent activities committed. Five percent is an average level of fraud for a company, and it would be wise for executives to take this number seriously. Continue reading

Blaming the Auditors for Fraud

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magnifyprintWhen a company discovers an internal fraud, it’s not uncommon for owners and management to look for a party to blame. After all, someone should have known that a fraud was in-progress, right? Often, the blame is cast in the direction of the auditors.

The auditors are an easy target. Not only do they usually have professional liability insurance policies to fall back on, the auditors initially seem like the logical culprit.

Management often believes that the auditors worked very closely with the financial information; therefore, they should have discovered the fraud. Continue reading

Stop Fraud Before It Starts

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My idea of a good time: Digging through boxes of documents for hours on end, looking for that smoking gun that proves an employee was stealing from a business.

An attorney’s idea of a good time: Going to court with the expert witness who proved the employee was stealing, and burying the guilty party with a verdict in favor of the client.

The client’s idea of a good time: Having employees who don’t steal from the business in the first place.

Let’s face it, dealing with employee theft is no picnic. And while I certainly don’t mind making a living busting thieves, it’s always disheartening to see business owners put in a bind because of someone’s sticky fingers. Continue reading

How to Develop a Fraud Investigation Policy

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An investigative policy is an important tool to help manage the process of initiating a corporate fraud investigation. Doing so will help bring uniformity to the evaluation of fraud allegations, and it will help guide management through the decision making relative to the claims.

The first step in creating an investigative policy is drafting a list of red flags that might cause management to investigate. For example, a credible tip from an employee or vendor would be an important red flag which needs follow up.

The policy should help management determine what “credible” means in these situations. Does the tip come from someone who is usually reliable and honest? Does the tip make sense in light of known facts about the employees and the company? Are there sufficient details about the allegations so as to lend credibility to them? Was any credible evidence submitted with the tip? Continue reading

Don’t Try a Do-It-Yourself Fraud Investigation

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When a business owner or executive encounters proof of a fraud-in-progress, a natural reaction is often to immediately begin investigating. After all, someone has to get to the bottom of the situation. Yet that’s not usually the best way to go.

Just like on television, we need to give owners and executives a warning that they should not try this at home. It’s tempting to dig right into a potential fraud and start to unravel what’s happened. While the immediate gathering of information is helpful to a fraud investigator, when an inexperienced person tries to go further and actually investigate, bad things can happen.

The biggest reason why company personnel should not try to investigate a fraud on their own is that a good investigation takes an experienced investigator. There are special skills that fraud investigators have, and it’s almost always best to bring in the real experts. Company personnel sometimes inadvertently destroy or damage evidence during their investigation, so that’s another reason to stop amateurs from investigating. Continue reading

Finding Bribery and Corruption Schemes

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When fraud happens within an organization’s accounting system, there is often a paper (or digital) trail left behind. It’s unavoidable, as there is a record of something related to the fraud, whether it is a legitimate invoice that was later adjusted, an account balance that was changed, or a fake employee who was added to the payroll system.

Frauds involving bribery and corruption are different. They happen almost completely outside the accounting system, so they often don’t leave a paper trail. Management instead must rely on tips or other vague clues to the existence of such a fraud scheme.

Bribery and corruption typically arise out of relationships between people, so in order to detect them, management must often be aware of the personal relationships between employees and outside parties. That is clearly a difficult task, and often nearly impossible. Continue reading