Small business clients at risk.Small businesses are the most vulnerable to occupational fraud and abuse and suffer disproportionately larger losses as a result, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the 2004 "Report to the Nation on Occupational Fraud and Abuse" prepared by the Association of Certified Fraud Examiners Established in 1988 the Association of Certified Fraud Examiners is the professional organization that governs professional fraud examiners. Its activities include producing fraud information, tools and training. . Compounding the problem, small businesses are less likely to have the ability to survive such losses. CPAs are often the first resource small businesses contact when they suspect fraud has occurred. This is particularly true for small nonpublic clients that may not have the internal audit or human resource departments that are familiar with the processes and procedures to be followed in such circumstances. How should CPAs advise such clients? First and foremost, they should caution against reaching any conclusions until the alleged incident is investigated thoroughly Then they should follow this step-by-step process. The CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. can perform steps one and two concurrently Step one: Determine the initial facts and circumstances * How did the client become aware of the suspected fraud? * How might this fraud have occurred? * Are the allegations credible? * Can you identify the possible indicators of fraud? * Are others aware of the suspected fraud? * Could others be involved? * Are there changes in the suspected employee's lifestyle? * Were background checks performed? * What are the estimated losses? * Who are potential witnesses? * Can another employee substitute for the suspect temporarily? Step two: Seek the advice of legal counsel to avoid potential litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. * Is the suspect an employee at will, or is there a valid employee agreement? * Are policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental in place to deal with termination? * Can the employee be placed on administrative leave? * Are there policies and procedures regarding the expectation of privacy? * Is fidelity bond An insurance device in the form of a personal guaranty that protects against loss resulting from disreputable or disloyal employees or other individuals who possess positions of confidence. coverage applicable in this situation? * What procedures should be followed in investigating the allegations? Step three: Investigate the allegations * Under counsel's direction, perform office searches, review e-mail correspondence and interview the suspect with at least two people present. * Interview employees and others who may have knowledge of the suspected fraud. * Hire a private investigator and forensic accounting Forensic accounting, sometimes called investigative accounting, involves the application of accounting concepts and techniques to legal problems. Forensic accountants investigate and document financial Fraud and white-collar crimes expert, if necessary * Make copies of, but do not work from or alter, original documents. These may be considered evidence and required in subsequent prosecution/litigation. * Quantify losses. * Consider contacting law enforcement. Step four: Take precautions * You may have to consider placing the employee on administrative leave or terminating his or her employment. * Deny the suspect access to the physical premises and associated properties. * Secure company credit cards and safety deposit boxes. * Disable the suspect's computer and network access. * Change signatories on bank accounts for which the suspect employee has signature authority Step five: Mitigate the damages * Seek restitution. * File a fidelity bond claim. Step six: Advise the client on instituting internal controls * Develop written accounting policies and procedures. * Segregate seg·re·gate v. seg·re·gat·ed, seg·re·gat·ing, seg·re·gates v.tr. 1. To separate or isolate from others or from a main body or group. See Synonyms at isolate. 2. functions and duties. * Limit access to documents, computers and assets to only those who need it. * Review and approve all journal entries and disbursements. * Require dual signatures on all checks. * Prenumber invoices and checks for ease of tracking. * Conduct surprise internal control reviews at intervals coming or happening with intervals between; now and then. See also: Interval . * Ensure that key financial personnel take a vacation annually Verify or audit their work during their absence. * Secure fidelity bond coverage. * Employ a third-party hotline service to receive tips of suspected fraud. * Institute appropriate preemployment screening processes. Considering the devastating dev·as·tate tr.v. dev·as·tat·ed, dev·as·tat·ing, dev·as·tates 1. To lay waste; destroy. 2. To overwhelm; confound; stun: was devastated by the rude remark. potential for loss from fraud by small business owners, CPAs need to be well-informed regarding incidents of suspected fraud. Equally important, they should advise small business owners about the need to make fraud prevention a top priority --Gregory F. Lawson, CPA/ABV, senior partner, Goodman & Company LLP LLP - Lower Layer Protocol , Newport News, Va., and Patrice Schiano, CPA, consultant, Protiviti, New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of |
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