Tag Archive for: fraud

Are you a victim of payroll fraud?

Payroll fraud is a serious issue that can have devastating consequences for businesses of all sizes. In this blog post, we’ll explore what it is, how it happens, and what you can do to prevent it.

What is Payroll Fraud?

Payroll fraud is a type of white-collar crime that involves the manipulation of a company’s payroll system to steal money from the organization. This can be done by employees or employers and can take many forms. Some common examples of payroll fraud include:

  • Ghost employees: These are fake employees who are added to the payroll system, and their paychecks are then deposited into the fraudster’s account.
  • Falsified timesheets: Employees may inflate their hours worked or claim overtime they didn’t earn.
  • Misclassification: Employers may misclassify employees as independent contractors to avoid paying taxes and benefits.
  • Unauthorized bonuses: Fraudsters may issue themselves or others unauthorized bonuses or raises.
How Does Payroll Fraud Happen?

Payroll fraud can happen in many ways, but it often occurs when there are weaknesses in a company’s internal controls. For example, if there is no segregation of duties between the person who processes payroll and the person who approves it, it becomes easier for someone to manipulate the system. Similarly, if there is no oversight of the payroll process, it becomes easier for someone to commit fraud.

How Can You Prevent Payroll Fraud?

Preventing payroll fraud requires a multi-faceted approach that involves both technology and human resources. Here are some steps you can take to reduce your risk:

  • Segregate duties: Make sure that no one person has complete control over the payroll process. For example, one person should be responsible for processing payroll, while another should be responsible for approving it.
  • Implement internal controls: Establish policies and procedures that govern the payroll process. For example, require two signatures on all checks over a certain amount.
  • Conduct background checks: Screen all new hires thoroughly to ensure that they are who they say they are and have the qualifications they claim to have.
  • Train employees: Educate your employees about what payroll fraud is and how to prevent it. Make sure they know how to report suspicious activity.
  • Use technology: Implement software that can detect anomalies in your payroll data. For example, if an employee suddenly starts working more hours than usual, this could be a sign of fraud.

By taking these steps, you can reduce your risk of falling victim to payroll fraud. Remember, prevention is always better than cure.

Conclusion

In conclusion, payroll fraud is a serious issue that can have devastating consequences for businesses of all sizes. It’s important to understand what payroll fraud is and how it happens so that you can take steps to prevent it from happening in your organization. By implementing internal controls, conducting background checks, training employees, and using technology to detect anomalies in your payroll data, you can reduce your risk of falling victim to payroll fraud.  If you feel you could be a victim of payroll fraud, a fraud investigation is the best way to find out.

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Fraud starts with lack of ethics

The bright line in ethics

Ethics means

Ethics is your moral code. Its your values, your sense of right or wrong. Its the principles you live by. However, ethics has degrees based on one’s values and principles. Ethical conduct does not always equate to following the rules.

Breaking the law a little is the same as breaking it a lot. Its black or white, not shades of gray. If employees feels that breaking the rules a little is no big thing because it was not “major”, your organization is already at risk for fraud. Your company should have a clear, concise set of rules with as little ambiguity as possible. Punishment for violation of those rules should also be spelled out and most importantly, applied consistently to all violators.

The tone at the top

What is the culture of the overall management? Does management abide by the same rules that they expect employees to abide by or do they circumvent them? The tone at the top is important in establishing an environment of ethical work. Employees need to see that management values the rules, otherwise there is no reason for employees to value them.

What is the culture of the area where fraud could occur the most? This is an important question and even more important are the responses. Fraud occurs commonly where it is “encouraged” or unethical behavior is frequently overlooked. To reduce the risk of fraud, management should identify the areas most susceptible to fraud and evaluate the culture in those areas. This information will serve the basis for a risk assessment, i.e. how likely is fraud to occur.

Rationalization: It doesn’t hurt anyone

We always have reason why we did something wrong, don’t we?

What pressure is being placed on people? Pressure comes in the form of external and internal. External pressure could have to do with personal financial problem, where internal pressure could be related to promotions, performance, and job security. Pressure is probably the biggest reason that otherwise ethical people, commit unethical acts. Understanding the pressures faced by your employees can assist with reducing the risk of fraud occurring.

As humans, we all have a morale code that we follow, to some degree. For an organization, the varying degrees of ethics is why the risk of fraud should always be in the front of management’s mind. There are other reasons someone commits fraud, but reinforcing an environment of ethical behavior and reducing pressures, can go a long way in mitigating fraud.

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Financial Statement Fraud Red Flags

Over the last several years, the number of cases related to financial statement fraud has experienced a gradual increase. In fact, according to a recent Cornerstone Research report, Accounting Class Action Filings and Settlements—2014 Review and Analysis, shows the SEC has a heightened focus on accounting, with cases involving restatements reaching a 7-year high in 2014.

Corporate FraudWhen you first hear the phrase financial statement fraud, you might think of having a bank statement that does not reflect the actual transactions that took place relating to a particular account. To be precise, financial statement fraud is a calculated method to omit, include, or misrepresent information that would affect the interpretation of a statement by the reader.

Both private and public businesses commit financial statement fraud to gain financially, conceal misappropriation of funds, or satisfy stakeholders in various circumstances. Top-level management most often performs financial statement fraud but any accounting employees with the inclination, ethical ambiguity, or pressure to “cook the books” may do so.

Indicators of Financial Statement Fraud

Although businesses that commit financial statement fraud might carry out such activities for any number of reasons, they risk coming into collision with the IRS. If tax returns do not coincide with the businesses’ statements, financial statement fraud may be the underlying reason. Below are some ways financial statement fraud is manipulated in business:

1. Improper Income Recognition

When a company does not give the right figures on the revenue they are committing financial statement fraud. The reason for this can be something as simple as the business realizing that it has experienced an increase in revenue and does not want all of it taxed. To keep some of the extra revenue, they might decide to doctor their statements to reflect lower income entries so that taxes are reduced.

2. Manipulating Expenses

For companies that want to seek financial assistance from potential investors or stakeholders, altering expenses may be one way they aim to be appealing. If a company recognizes that a stakeholder will only offer financial assistance if expenses are up to a given level, increasing costs on the statement might prove to be a viable option. Inversely, a company that wants to conceal misappropriation of funds might alter the statement to display lower levels of expenses.

3. Complexities in the Statement

If an account displays some complex transactions that are not clearly reflected in the statement, it might raise a flag. Complex transactions are sometimes included in statements to deviate the attention of the reader from some irregularities that, if detected, would raise controversies. As a result, complex statements keep the observer occupied, hence, missing out on important information on the statement.

Benefits of a Forensic Accountant

The discovery of financial statement fraud can have far-reaching implications for a business that may undermine their credibility and integrity. Investors are predominantly at risk, either by being misled prior to investment being, or by invested funds being misused. Others that may be defrauded are banks considering loans, suppliers with outstanding receivables, and customers who get paid by performance or are contracted to hit certain revenue milestones.
To avoid the above issues, consulting a CPA who specializes in forensic accounting is strongly recommended—and as most will say, when fraud is suspected—the earlier, the better. A forensic accountant is experienced in tracing funds, identifying assets, recovering assets, financial intelligence gathering, performing suspect interviews, and performing due diligence. These are critical skills needed to address concerns before they become red flags for the IRS.
If fraud is possibly an issue or if you are picking up the pieces after fraud has been uncovered, hiring an outside independent CPA firm to prepare financial statements can bring an added level of reassurance that integrity and objectivity is being upheld.
If financial statement fraud activities are brought to light, a business not only threatens tarnishing its reputation but also may be at risk for costly lawsuits and encourages regulatory involvement. To avoid such a fate, it is important that the business takes every precaution to avoid being linked in any activities that might lead to financial statement fraud.
Resources:

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What Types of Cases Do Forensic Accountants Handle?

Hiring forensic accountants for cases involving fraud investigation, litigation support, disputes and more

With the seeming rise in corruption and financial related crime in both the for- and non-profit sectors, identifying when forensic accounting is required can help to uncover evidence and limit overall risks to your company or organization. Just this month, International Relief and Development (IRD) was suspended from working with the US Forensic Accounting in word collageGovernment over alleged misuse by the organization’s senior executives of finances. Kris Manos, IRD’s interim president who was brought in, hired an outside forensic accounting firm to audit finances, including charges on the credit card of former president, Arthur Keys, who retired last July. Reported in the Washington Post on February 9, 2015, it claims that a top USAID contractor allegedly billed taxpayers for Redskins tickets, alcohol. It is in cases such as these where forensic accounting is needed to uncover the details and possible cover up or hiding of evidence. This can usually be uncovered when investigated and analyzed properly by a qualified and experienced forensic accountant. Read on for more areas of business and financial operations where forensic accounting comes into play.

Fraud

Cheryl Jefferson and Associates summarizes fraud as “…the act of one party deliberately misrepresenting the truth or fact, in order to obtain something of value from or causing damage to another party.”

According to a survey conducted by the Association of Certified Fraud Examiners and reported in their 2014 Report to The Nations on Occupational Fraud and Abuse, organizations typically lose 5% of annual revenues each year to fraud, with the median loss totaling $145,000 and 22% of those being at least $1 million. The report goes on to reveal that the 3 primary categories of fraud are asset misappropriations, corruption and financial statement fraud. These statistics along with report details make a compelling case for anti-fraud expertise to identify fraud and recover losses.

Litigation Support

Comprised of several elements including discovery, fact finding, transaction testing, trial assistance and settlement, forensic accountants apply their expert accounting skills & knowledge to ensure the necessary analysis and evidential findings are determined for success of the case.

Dispute Analysis

Handling cases of disputes properly requires forensic accounting. Some of the areas of disputes can involve calculating commercial damages, settling financial matters from contract disputes, handling a violation of the False Claims Act or infringement of patents & intellectual property. These types of cases require forensic accountants to uncover the details and allow optimal resolution.

Bankruptcy

As laws involving bankruptcy & insolvency become more stringent, forensic accounting becomes necessary to assist in preparing the case, offering the proper records and providing the proper evidence for court proceedings.

If you know or believe your company or organization is involved in internal criminal activity or you are facing litigation, forensic accounting is necessary to ensure you are uncovering accurate findings, gathering the appropriate evidence, and garnering the expert support as litigation unfolds. Make certain your accountants hold the required expertise and knowledge for forensic accounting.

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Things a forensic expert for a government contractor knows

Forensic accountants/CPAs require unique skills and training in order to blend accounting, auditing, and investigative skills to uncover and analyze financial data. In addition, to uncovering fraud, forensic accountants/CPAs provide litigation support in a courtroom setting. If you are a government contractor, considering hiring a forensic accountant or CPA, here are five things your forensic expert should know:

1. Government Contractors and their Unique Accounting Needs

Extensive experience in assisting government contractors is critical. CPA firms like Cheryl Jefferson & Associates are familiar with the specific needs of government agencies, their frequently changing regulations, and how to navigate a government contract audit. An experienced forensic CPA can provide more accurate service, more quickly, and know what to look for as it relates to government contract requirements.

2. Small Businesses and Their Internal Control Limitations

Small business accounting may appear to be simpler than that of a larger business. This isn’t always the case as many subtle nuances must be considered when working with smaller companies. A forensic CPA/accountant that specializes in these types of clients and are aware of all the intricacies that come with them, will be more fluent their particular internal controls. This will significantly reduce the time spent on researching accounting and taxation matters.

3. Cost and Revenue Sharing Joint Ventures Disputes

Forensic accounting specialists that have a great deal of experience in analyzing cost and revenue sharing arrangements, and can greatly expedite resolving joint ventures disputes. Because joint venture disputes require special knowledge, your forensic expert should have experience with accounting for joint ventures in order to adequately resolve all issues. Cost analysis can dramatically change the outcome of such contracts so there is a lot at stake. It is important to hire the right team that can support a fair resolution.

4. False Claims Act & Unallowable Payments

An experienced forensic CPA/accountant can offer advice on accounting practices and transactions that  may violate the False Claims Act and other matters of unallowable payments. Such information can help your company avoid committing fraud against the government, as well as defend against false claims act charges. Government contractors often need consulting on how to navigate these issues to avoid further claims so a high-quality forensic advisory service is essential.

5. Fraud in Financial Reporting and Employee Theft

No company wants to deal with fraud, but the unfortunate truth is fraud, bribery and corruption cases continue to rise. A forensic CPA can conduct extensive review on financial reports to identify possible fraud. Employee theft can be uncovered by specialists through the examination of company financials records and assets. An experienced CPA will know what to look for in order to identify fraud or employee theft within your business.

Cheryl Jefferson & Associates provides accounting, auditing, and advisory services to small businesses and government contractors, in conjunction with the comprehensive forensic accounting services of CJA Forensic Accounting, for your business. Our principal is certified in financial forensics (CFF) and is dedicated to make sure you receive a high-quality experience. We are confident that we will be able to take care of your company’s needs. Contact us to get the facts today!

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