The impact of fraud can be felt in our economy. Tax fraud can mean higher tax rates and \ or reduced quantities of services for the citizens receive. Business fraud can lead to higher prices for consumers to call value destruction for shareholders, lower profits and low quality of products and services, to name just a few examples .
Fraud can also affect small firms by funneling cash and assets from the business and possibly the increase in liabilities (income taxFraud). Just as a small business owner can spot a potential fraud cases? A red flag for small businesses is a series of circumstances that are rare in nature and varies from "normal" activity of the workers. Business owners should understand what is normal activity in order for their employees, what un-normal activity understand is. In addition, each operator should investigate red flags to identify the reason for the unusual circumstances. Too oftenEntrepreneurs get too busy to investigate the red flags, or one on the dependence of trust. During the investigation should understand the business, if the abnormal transaction was a mistake, or if the intention was to cheat. As explained Dennis Dycus, CPA (an expert in fraud): "Fraud and stupid often exactly the same."
According to Dennis Dycus, CPA, fraud occurs when three ingredients are added. The ingredients are necessary to rationalize and opportunity.Small business owners) can control the environment (opportunity. Small business owners tend to have low internal controls, based primarily on trust. The number one reason fraud occurs, is a blind trust. Trust is good, but as the old saying goes: "Trust, but verify."
As stated in the article "What Is Your Fraud IQ?" by Andi NcNeal, CPA, CFE: "Placing a considerable amount of trust in employees is part of the cost of doing business. Trusting employees to accessInformation that is, products, suppliers and resources for the implementation of an effective and efficient operations. But some people, when confronted with enough pressure, a perceived opportunity, and the ability to rationalize a crime, the advantage that confidence to take and deceive their employers. "Good and ethical people can be a criminal offense in the words to rationalize itself is ok (I work hard, I'm underpaid, I will repay the loan, etc.)
If trust is the only (or one of the few) internalMonitoring, employers should remind employees of the internal controls to avoid it, because in order to facilitate their task, but here is the opportunity for fraud is available. An employer could not put a stop not on internal controls, since the Employees listed are the new efficiency, or that they are too busy to make the correction. This can be a dangerous door to open.
The man is a man. Sooner or later the people will have to be a need, and they will rationalize the reason for the fraud (the firstand second ingredients fraud). Please note that overtime and weekend work, which they have not been paid? Remember how they are underpaid?
Good and ethical people can rationalize cheating. An employee of the demand is usually financially motivated (spouse work, medical expenses, debt pressures, etc., laid off). The employee typically will rationalize the fraud by stating that they pay the money back or they will deserve it because they are poorly paid, etc.
What kind ofEmployees should have red flags, the employer? Some red flags should make the employer an employee include changes in lifestyle, an official with personal debt and credit problems, changes in behavior (drugs, alcohol, gambling, affairs, afraid to lose their job, etc.), a high turnover, refusal , vacation or eating sick, lack of separation of responsibilities and duties, low or inadequate levels, difficulties in obtaining audit evidence, severe disciplinary action, lack ofRespect and appreciation by superiors and resentment for not treated fairly. I think it is fair to assume that employers employees with at least one of these red flags.
The employer finds a red flag or three, now what? The employer should analyze the flag. If the transaction caused by error or fraud? Is there a history of similar transactions? Does the employer understand the transaction? If the employee understand the transaction? If the right internal controls inPlace? Trust is enough? If there is no fraud, the employer should understand the warning?
How can an employer create an environment hostile to fraud? Management must set the tone for the organization. These actions speak louder than words in a manual (especially if the words and diagrams) are not followed, that is, management must be preceded by example. Management should follow the internal controls, not to circumvent the work done faster. Management should walk, talk and listen,Employees. Management should take the floor and you see your people in action. Are they really following the rules? Management should talk with the staff to find out what is really behind their backs and get information about employees personal lives. Management should be on the lookout for action from the normal work of an employee's lifestyle of their employees, dress code, privacy, personality, etc.
Small business has created a ripe environment for fraud. They createdan environment based on trust. Combined on the dependence of trust with today's difficult economic environment in which employees more worried about their personal finances, and you have the potential for fraud.
References:
What's Your Fraud IQ? By Andi McNeal, CPA, CFE, Journal of Accountancy September 2009
Recognizing fraud and creating a hostile environment for it by Dennis F. Dycus, CPA, CFE, CGFM 2009 South Eastern Accounting Show, 26 August,2009
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