JOLIET, Ill. — People don’t typically know what fraud or a fraudulent person looks like.
“If you can think like a fraudulent person you can protect yourself from it,” said Kelly Richmond Pope, accounting professor at DePaul University. “The more we can think about the holes, the easier it is to set internal controls.”
The schemes are the same, regardless of the industry, Pope said during a fraud workshop hosted by the Illinois Agri-Women.
“Especially when you have a relationship-driven business,” she said. “When you know someone, sometimes the internal controls become more lax, but we have to keep professional skepticism at the forefront.”
Some of the common fraud schemes are unauthorized credit card use, misdirected checks, siphoning revenue to an extra bank account, returning parts or supplies for cash or fake invoices.
“According to research, internal fraud accounts for nearly 75% of most of the breeches,” Pope said. “That means people we work with which is scary, but it happens.”
“I find it fascinating the way people rationalize their roles in frauds. Sometimes you can relate to them, and other times you can’t,” said Pope, who is a forensic accounting expert. “A lot of us have access to money — if you have a business credit card, you have access to money.”
Good internal controls will not stop people from stealing, Pope said.
“But good internal controls can catch a person that is stealing,” she said.
“Business owners who think they don’t need internal controls often say things like — we have great internal controls, we have the best employees, he or she is part of the family, or our auditors give us a clean bill of health every year,” she said.
“The traditional financial statement audit is not designed to find fraud,” said Pope, who produced and directed the movie, “All the Queen’s Horses,” which tells the story of Rita Crundwell, the city comptroller of Dixon.
Over a 20-year period, Crundwell stole $53 million of public funds and used the money to build a nationally-recognized quarter horse breeding operation.
“When you think about Dixon, the auditors should have found it,” Pope said. “But during these audits, they take a random sample of the transactions. The auditors don’t look at everything.”
Pope talked about the best practices for handling cash in a business.
“Perform background checks on key people that are handling cash,” she advised. “So often this is never done.”
A standardized cash handling process is key, Pope said.
“Depositing, counting and balancing cash should follow a strict schedule,” she said. “Limit the employees who handle cash and make sure cash handling duties are segregated.”
Fraud can happen where a person has opportunity, pressure and uses rationalization, Pope said.
“Opportunity is the only aspect of this fraud triangle that a business can control,” she said.
If a person suspects a fraud may be happening, Pope said, expense reimbursements always are a good starting point in an investigation.
“Check tampering schemes are the easiest frauds to uncover,” she said. “Make sure you get check images and look at the bank statements.”
Fraud often looks like accounting errors, Pope explained.
“If it feels wrong, it’s probably wrong, so follow your gut,” she said.
“If you issue credit cards to employees, make sure you review those charges,” she said. “If your employees know you’re looking, they’re less likely to steal.”
Any good accountant will be able to provide a statement with a click of a button.
“Be cautious if you can’t get basic financial information,” Pope said. “If you ask a question to your accountant and he stalls, that’s a red flag.”
Pope encourages companies to put safeguards in place around everyone regardless of their role in the business.
“If you start this policy on day one, no one will question it and then it is easy to get everyone on board,” she said.
For more information about Illinois Agri-Women, go to www.illinoisagriwomen.org.