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, one of our directors, as well as one of our Certified Fraud Examiners. Danielle, welcome back to The Playbook.

Danielle: Good to see you again, Jen.

Jen: So as a CFE I know you work with attorneys on the fraud investigations. Now, attorneys have attorney/client privilege; does that extend to your work with their clients?

Danielle: In certain circumstances it can. CPAs traditionally – as rank in file CPAs – we have confidentiality with our clients, which means I can’t go blabbing your business out and about anywhere I want to. But I can be compelled to testify with a judge-signed court order.

In short, we’ll keep this simple. The difference is… privilege is a higher level. Attorney/client privilege that’s not an Attorney CPA client privilege, but there are certain circumstances where that attorney/client privilege can pass down to the CPA if the attorney manages the engagement correctly and puts proper procedures in place.

And what the benefit of that really is is if you’re doing a corporate investigation and you don’t necessarily know what you don’t know yet, and you have potential brand risk on the line, a lot of times you’ll want those investigations under privilege until you determine what to do or what is the result of those investigations. So many times we’ll be asked to work under privilege running through the attorney. Clients can wave the privilege if they want to; we’ve had ones where entities want to self-report a particular situation. Disclosing to the auditor actually does create disclosure to the third-party, which then can create privilege problems.

And so, working with the attorney to make sure we understand what is the scope, how the privilege is working. There’s also some tax controversy if you have some tax concerns; it’s called “Kovel,” where the privilege does move down as well. It’s a best practice to try to put the engagements in the type of engagement that they should be in for protecting the client. This is really a client protection matter, because you want to trust your CPA and be able to actually disclose information to your CPA that they can help you with.

Jen: Speak freely, give you all the information you need to help them out.

Danielle: Exactly. And I once had a client ask me, when this was just a regular confidentiality matter, they said, “Well, does that mean you’re going to sing like a canary?” And I go, “Well, that means I’m going to have to tell the truth if I’m asked the truth.” We can’t claim the 5th amendment, because it’s not self-incrimination, so making sure you bring in the attorney to manage that is really important.

Jen: Perfect, sounds good. We’ll get you back to talk some more fraud – interesting stuff always. For more about 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.

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: Thank you, Jen.

Jen: We’ve done a whole series on fraud, and I’ve heard people say, “Cash is king.” What can companies do to protect their cash?

Danielle: It’s actually… I won’t say “easy” but pretty cost-effective measures that can be put in place. Usually you have to work with your bank and see what treasury management your bank has, but honestly, requesting meeting with your treasury management department at your bank for your commercial banker and they will be able to go through a lot of the options. The biggest one I push is something about ACH protections.

What you need to initiate in ACH… Let’s use a personal example: you go to your online electric bill provider, and they say, “Do you want to pay by e-check?” because that’s cheaper than charging you for the 1-3% they try to charge you. And so, you put in your routing number and your account number – and what’s on every single check you’ve ever issued is your routing number and your account number – and so those checks are out there.

That means your account number is out there, and your routing number is out there. So, you need to protect an ACH, because those monies come out of your account; once they’re gone, they’re gone. Business bank accounts are different than individual bank accounts; individual bank accounts, usually, there’s some consumer protection. You call up, you say, “Hey, I’ve had fraud, and Bank, please give me my money back.”

Jen: And they say, “Oh, okay. Sure!”

Danielle: Okay, sure. Commercial accounts don’t work like that; the money is gone, the money is gone. You can call the police, and they can try to investigate; it crosses international, it crosses state borders – it’s gone.

Jen: It’s gone.

Continue Reading Putting Controls in Place to Protect Businesses from Fraud

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

Danielle: Thanks for having me.

Jen: In your fraud and forensics practice, I know you work with a lot of not-for-profits. There’s fraud in not-for-profit?

Danielle: Unfortunately, yes. One of the risks that non-profits have is that—we’ve done a session before on small businesses and how small businesses are more susceptible for fraud because of their ability to, in effect, invest in their infrastructure and the size of their resources. It takes it one step further for non-profits.

The problem is that most non-profits are not profit maximizing entities, by the name, but really some kind of social good maximization. Most of their money goes toward spending on their mission. Accounting is not usually the mission of most non-profits, as much as I’d like it to be, and so what ends up happening is that a lot of metrics for non-profits on their success are based on the percent spent towards their mission vs. what they spend on their admin, or actually fundraising as well, but I care most about the admin for this little conversation and topic, because where you prevent fraud is on IT resources and accounting resources.

Since they’re actually theoretically penalized for investing heavily in IT and accounting infrastructure because of that percent spend, through lesser donations is the penalty, they tend to push the limit as far as they can go on cutting costs on overhead and not investing in the technology—

Jen: Not a lot of oversight, either. A lot of not-for-profits are working with volunteers, too.

Danielle: Yes, which creates additional risk for them.

Jen: Is it more complicated then for a not-for-profit?

Danielle: Accounting for a non-profit is more complicated than a rank and file business, and the reason for that is that because they are getting donations from either the public, just soliciting general donations, or a private foundation, or even actual the public US government, or a state and local government. There’s a certain duty to spend the money that you’re receiving for your mission in accordance with the donor stipulations. That tracking is actually pretty darn complicated to do, especially on a bootstrapped infrastructure from a spend perspective.

Jen: How would a not-for-profit not necessarily prevent fraud but eliminate some risk?

Danielle: There’s a lot of things that can be done to eliminate some risk. The key control is around cash, really tightening down cash, using the tracking feature of different accounting softwares and kind of hacking together at various accounting softwares to be able to track those restriction. And actually understanding what’s going on in your books and not overcomplicating it for the sake of overcomplicating but making sure that you’re figuring out where that money is actually going. Doing your best practices book keeping, bank reconciliations, that kind of stuff. The most important is tightening down cash more so than anything else.

Jen: Good to know. We’ll get you back to talk a little bit more about that.

Danielle: Sure thing.

Jen: For more about 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.

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

Danielle: Thanks for having me.

Jen: So, Houston’s an international city—we’ve had Frank Landreneau, one of our international tax directors on the program. There’s a lot of opportunity for fraud. What are you seeing in the international space?

Danielle: One of the concerns with the international space and fraud is actually the existence of the Foreign Corrupt Practices Act. It says you can’t bribe officials, which is a pretty obvious matter for international foreign officials.

Jen: One would think you don’t want to bribe people. So, what does the FCPA actually cover?

Continue Reading Understanding Fraud in International Business