PC Computing: Best Free Software/ZDCD.iso/top100/smalb.exe/F432.SBE

Text File | 1997-09-03 | 6.9 KB | 147 lines

     ┌─────────────────────────────────────────────────────┐
     │ RED FLAGS:  RECOGNIZING POTENTIAL ACCOUNTING FRAUD  │
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If your business is large enough that you have turned over
much of the everyday accounting and bookkeeping functions
to a bookkeeper or accountant who works for you, you are
in a potentially very vulnerable position, which behooves
you to be very suspicious and even paranoid.  Billions of
dollars are lost every year to embezzlement by people who
are often thought to be trustworthy and honest to a fault.
More money (by far) is stolen each year with the stroke of
a pen, or by a keystroke on a computer, than by all the
armed robbers in America.  Accounting fraud isn't violent,
isn't obvious, and it sometimes goes undetected forever,
which is why it is such a serious and costly problem.

Embezzlers can be anyone.  Sometimes they are close
friends, relatives, or even a spouse or ex-spouse of one
of the principals in the business.  They are almost
always people whom you would never dream would steal you
blind, leaving your business financially crippled or even
bankrupt.  Which is why they are able to steal, since
their employers feel they are so honest, in most cases,
that they don't need to check their work or maintain any
kind of internal financial controls to prevent fraud.

Embezzlers often resort to incredibly crafty and involved
schemes to loot the company they work for, setting up
phony bank accounts or creating "dummy" companies, complete
with mailing addresses and official-looking letterheads and
invoices.

As a result, your company may wind up paying out large sums
based on invoices from suppliers who don't exist and who
don't actually provide anything to the company.  Or, in
some cases, the embezzlers simply forge checks, often drawn
on secret accounts they have set up in your company's name,
into which they divert payments received by the business.
If you are counting on the bank to catch any such forged
signatures, don't hold your breath.  The sad fact is that
many banks today make little or no efforts to ever examine
signatures on checks, to determine whether they are real
or forged.

Some of the "red flags" you should look for, that may
indicate your accountant or bookkeeper could be embezzling
from you are the following:

 . First and foremost, the embezzler usually will seem
   incredibly devoted to his or her job, and will never
   want to take a vacation, for more than a long weekend.
   This is a major tip off, as the dishonest bookkeeper will
   be very afraid that if he or she isn't around all the
   time to open all the mail from the bank and otherwise
   keep a lid on things, that you or someone else will
   discover the pattern of fraud.

 . An accountant or bookkeeper who is stealing funds from
   you will also tend to come in early and work late much
   of the time.  Because maintaining the fraud and creating
   all the phony paperwork to continue the cover up often
   takes a great deal of time and effort, it is not
   surprising that they will have to come to work before
   you do and be the last one out at night, as they have
   a lot of extra work to do.

 . While many embezzlers are simply greedy, fundamentally
   dishonest, or have a grudge against the company, which
   they may think underpays them, a large percentage of
   such employees are people who would otherwise never even
   think of stealing from you, but who get into a deep
   financial hole, either from a gambling or another
   expensive addiction (such as narcotics), or who have
   a financial emergency and use their position of trust
   to secretly "borrow" money from the company -- which
   they often fully intend to pay back.  Gamblers are a
   particularly high risk, and you should be extremely
   cautious about an accountant or bookkeeper in your firm
   who seems to have a penchant for gambling, as they
   frequently wind up owing large gambling debts to some
   very unpleasant people who don't take "no" for an
   answer.  That kind of pressure, even for a basically
   honest and loyal employee, can often lead them to resort
   to stealing from their employer to pay their gambling
   debts.

   Typically, they will then "borrow" more money from you,
   in a vain attempt to win back enough to quietly repay
   what they have already stolen from you, and almost
   invariably lose that, too, as they fall into a vicious
   cycle.

   Accordingly, keep a very close eye on your accounts,
   especially making sure that you or another employee
   occasionally do the bank reconciliations, if your
   chief financial person makes frequent trips to
   gambling casinos, plays the lottery heavily, and
   constantly boasts of how much he or she has won in
   such gambling activities, or gambling on risky stock
   or commodity market investments.

   In the real world, hardly anyone wins regularly in
   gambling, except the people who own the casinos or run
   the lotteries.

 . Also be very careful of a bookkeeper or accountant
   who has a substance abuse problem, as they may have
   a very expensive legal or illegal drug habit they
   they can't sustain on the salary you pay them.  Tapping
   into your company's bank accounts may be the only way
   they can support their expensive habit.

 . Finally, pay attention to your accountant's life
   style, if he or she appears to be living beyond his
   or her means.  You will know exactly how much you
   are paying your accountant, and you should make it
   your business to know what kind of income his or
   her spouse earns, if any, or if they have significant
   outside sources of income.  If they frequently buy
   expensive cars, boats, or the like, or move up into
   an expensive house, and you can't understand how
   they can do so based on their level of income, it may
   well be because that income is being "supplemented" by
   your company, unbeknownst to you.

As someone once put it, "Never trust a bookkeeper who
comes to work in a Rolls-Royce."

If your in-house accountant who keeps your books exhibits
some or all of the characteristics listed above, it
doesn't mean you should fire them, only that you should
maintain adequate controls to make it difficult or
impossible for them to carry on a fraud without detection.
Many accountants are simply very hard, devoted workers,
who naturally tend to work long hours and rarely take
vacations, which does not mean they are embezzlers.  But
your occasional cross-checking of their work, or insisting
that they take their accrued vacations, is the ounce of
prevention that may just save you a fortune.  Just as long
as they aren't going on an extended vacation to Brazil....

As Andrew Grove, CEO of Intel Corporation, has put it in
another context, "In business, only the paranoid survive."