It’s Fraud Week, everyone!

For the week of November 11 – 17, supporters around the globe are promoting anti-fraud awareness and education to minimize the impact of fraud.

There’s a lot of information and resources out there, but what is imperative to know about fraud, how to detect it and what to do if there is fraud happening? We’ve done a series of videos on this topic, as well as published articles and informative pieces, but here are five key things to always keep in mind:

  1. Small- and medium-sized businesses are particularly at risk, and what makes them susceptible is the struggle with having enough resources (cash, time, and/or expertise) to have traditional controls and segregation of duties. For more details, click HERE.
  2. Some common indicators of employee fraud include: overly close relationship with suppliers, vendors or customers; destruction of files without proper authorization, resistance to providing information to auditors; and much more. For more details to see if your company is a victim of fraud, click HERE.
  3. The hotline is the number one way for tips to be reported, and that is the number one method of detecting fraud. Having a hotline reduces the median loss for profit by about half. For more details, click HERE to watch this episode of Entrepreneur’s Playbook.
  4. One of the first steps to take when you detect fraud is, assuming you’re in the position to be the head of the company, you need to call your attorney first. Getting the attorney involved on the front end can help prevent missteps through the investigation process, which you can accidentally do illegal things as you investigate the fraud. For more details, click HERE to watch this episode of Entrepreneur’s Playbook.
  5. One of the most effective methodologies to reduce the risk of fraud, according to the ACFE, is having a proactive data monitoring process. That reduces your risk of median amount of loss, as well as the duration of the loss by over 50%. For more details, click HERE to watch this episode of Entrepreneur’s Playbook.

Stay committed to not commit fraud!

For more information, visit PKFTexas.com or contact me at dcheek@pkftexas.com.

This blog post contains general information only. Pannell Kerr Forster of Texas, P.C. (PKF Texas) is not rendering accounting, business, financial, investment, legal, tax or other professional advice or services. This blog post is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. The views expressed are mine and mine alone and do not represent the views of PKF Texas. PKF Texas is not be responsible for any loss sustained by any person who relies on this blog post.

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m back again with Danielle Supkis Cheek, a director and one of our Certified Fraud Examiners. Danielle, welcome back to the Playbook.

Danielle: Thanks for having me, Jen.

Jen: Certified Fraud Examiner – clearly handle fraud for our firm – what happens if a company has fraud?

Danielle: The first step if somebody in a company finds fraud is you really should follow your internal procedures on what to do about fraud if you have some. So, if you’re a rank and file employee or even at the higher levels, if you have a hotline, you should follow your procedures to report that to the hotline first. And actually having a hotline reduces the median loss for profit by about half so have a hotline.

After that it gets a little bit harder and more confusing of what do you do once you’re the person receiving the tips from the hotline or if there is no hotline. Assuming you’re in the position to be the head of the company or up there really the first call needs to be your attorney. It really needs to be your attorney. I realize I’m the CPA, but the first call really should be the attorney. Getting the attorney involved on the front end really can help prevent some missteps through the investigation process. The investigation process – you can accidentally do some illegal things as you investigate the fraud.

Jen: Yikes, okay.

Danielle: You could also put your company at more risk than you already were just being subject to the fraud by mishandling your investigation. You could also put in jeopardy the ability to prosecute or go after from a civil side your potential fraud situation if you don’t have an attorney helping guide you on the proper steps.

Jen: So at what point do the CPAs or the forensic accountants come in?

Danielle: After the lawyer. Usually it’s the lawyer that comes in first, assesses the situation, gives us a call or the client brings us in. We actually get a fair amount of calls directly from clients wanting to investigate the fraud right away without their attorney, and we usually try to push back and say get your attorney first. We’re gonna probably spend the most time because financial fraud… they think we need a CPA – and you do – but you also need a whole team together, because the CPA is just one piece of the team. There’s also computer forensics, private I’s; honestly corporate security sometimes gets involved. There are some really sensitive HR matters that you sometimes need even just an HR specialist that’s a consultant, and then of course that kind of pinpoint person of the attorney.

Jen: Now do you recommend – and it’s probably based on the attorney advice – that some of these people be in-house to the company and some of them be external, or do you recommend them all be external?

Danielle: I think it can depend on the situation. A lot of times if a company has really strong HR resources there’s no need to bring in another HR consultant. Sometimes a lot of companies have some very strong accounting resources and the fraud doesn’t necessarily occur within the – or the risk of fraud or the concern of fraud – doesn’t happen within a particular team, so that team may be able to help on the investigation. But if that’s the team that you’re concerned about, you may not want to use them. So, I think it really depends on the facts and circumstances of a particular situation.

Computer forensics, though, is one that’s usually always external to the company. Your IT team at your company may be the best of the best of the best, the problem with it is the evidence collection technique; you are usually not set up for that at a company, and you probably don’t have the right software and the right imaging devices to get that forensic quality image of the computer and be able to have that chain of evidence go through. So, computer forensics is probably the one that you almost always want to use an outside firm for.

Jen: Sounds good. Well, we’ll get you back to talk some more about fraud, because it’s a really interesting topic.

Danielle: Of course. I would love to.

Jen: Thank you. For more on this topic, visit PKFTexas.com. This has been another Thought Leader production brought to you by PKF Texas the Entrepreneur’s Playbook. Tune in next week for another chapter.