Internal Accounting Controls: Beware of Occupational Fraudsters

Filed in CPA Blog by on February 5, 2013
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by Jenea Smith, CPA, February 5, 2013
Since 2005, licensed CPA’s in California have had specific education requirements directly related to fraud in financial statement reporting.  There are several reasons for this; the most obvious being that fraud does exists.  Unfortunately, if you have a business or work for an organization, there is a chance that fraud is occurring in your workplace. Even in the prosperous San Francisco Bay Area, fraud can be a concern. Smart companies initiate internal accounting controls under the guidance of their CPA firm partners before a fraud problem occurs.

Internal Accounting Controls and Fraud - the San Francisco Bay Area Perspective

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Statistics on Fraud from the Association of Certified Fraud Examiners

The statistics are startling.  The Association of Certified Fraud Examiners released the 2012 Report to the Nations on Occupational Fraud and Abuse.  This study points out many eye-opening findings related to fraud in the workplace.  Notable are the following:

  • Misappropriation of assets is the most common type of occupational fraud (i.e. theft of cash).
  • Fraud losses tend to be greater when committed by individuals that have been with an organization for more than 10 years.
  • Departments that are most vulnerable include accounting, operations, sales, executive/upper management, customer service and purchasing.
  • Fraudsters are often times first-time offenders with no convictions or reports in their employment histories.
  • Behavioral red flags exist, with fraudsters often living beyond their means, having financial difficulties, having unusually close relationships with vendors or customers, and displaying excessive control issues.
  • Worldwide, the greatest risks are corruption and billing schemes.

It also notes that occupational fraud is more likely to be detected by a tip than by any other method.  Also, having good anti-fraud controls showed a correlation with significant decreases in the cost and duration of the fraud scheme.  To that end, organizations should consider:

  • Implementing a “whistleblower” policy which allows there to be a platform for tips to come in.
  • Implementing or strengthening internal controls within the business in order to prevent and detect fraud.

Although the general business owners and employees do not think of committing fraud nor do they expect it to be present at their business or place of work, it is important to be aware of it and to not be afraid to discuss their suspicions.  The results from these discussions can save businesses from those losses.

Organizations should consult with their Certified Public Accountant to assist them with developing effective internal controls.

About G & J Seiberlich & Co LLP and Safe Harbor LLP – Two San Francisco Bay Area CPA Firms

We at G & J Seiberlich & Co LLP and Safe Harbor LLP have professionals who are well-trained and can assist you in designing and improving your internal controls.  We can also assist you in investigating a fraud if one has occurred.

If you need additional information regarding this article, contact Wendell (Dell) R. Coats, Partner at G & J Seiberlich & Co LLP at 707-224-7948, or contact Chun Wong at Safe Harbor LLP at 415-742-4249

IRS Circular 230 Notice

The Internal Revenue Service requires Safe Harbor LLP to inform the reader that any tax advice contained in this correspondence cannot be used for the purpose of avoiding penalties under the Internal Revenue Code or for promoting, marketing or recommending to another party any transaction or matter addressed.

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