Arson as Financial Motive

A form of insurance fraud occurs when the owner of a home or business causes a fire for the purpose of collecting on the insurance coverage. My assignments in this area include background investigations and application of forensic accounting techniques in investigating the financial strength of the business and the owner.

 Experience Is The Key
"You know you are having a bad day when you notice your bookkeeper came to work in a new Mercedes." So begins a seminar for businessmen and accountants that I authored and presented to groups all over the country. This is a paraphrase of an actual happening that was part of an employee theft examination I worked on in 1985. If anything these kinds of activities are increasing as is the need for trained professionals to combat them. Again, experience is the key. I can help!

Below is an article I wrote that was recently published by Bluffton Today (a South Carolina paper). If this sounds familiar, you must give me a call!

DO YOU HAVE A SECRET SILENT PARTNER?
Employee theft doesn’t just happen to other people. You know you’re having a bad day when you notice your bookkeeper came to work in a new Mercedes! That is the opening line of a talk that I have given to business owners across the country concerning employee theft or occupational fraud. And it actually happened!

If I were to list the statistics compiled by the Association of Certified Fraud Examiners, most business owners would be amazed. Such as that the average scheme lasted 18 months before it was discovered and that the average loss to a small business in 2002 was $127,500.

Small business owners are the most vulnerable to occupational fraud. Why? The size of the business often makes separation of duties difficult. One employee with a variety of duties can be weak spot in your financial underpinning. The primary cause of occupational fraud is OPPORTUNITY. The most common statement I hear when I am investigating a loss is “I can’t believe he/she did this, I trusted him/her completely.” The truth is only a person you trust can steal from you!

As a CFE I was taught about the fraud triangle. Namely, OPPORTUNITY, PRESSURE, RATIONALIZATION. When an employee has opportunity it opens the door to many possibilities. If outside pressure, such as a sudden financial emergency, substance or gambling addiction or marital difficulties occurs, an otherwise honest employee may cross the line.

Since most of us consider ourselves honest, crossing the line usually involves rationalization of our actions. Such as “I am just borrowing, I will pay it back.” “The boss won’t miss it, he has plenty.” “She owes me any how for all the extra work I do.”

What can you as a business owner do? First step back and take a look at the overall money handling aspect of your business. Do you rely to a great extent on one key employee to handle the financial matters? Do they know more than you about the financial systems in use? Do you really look at supporting documents when checks are brought to you for signing? To the extent possible you must separate the record keeping from the handling of money. The most dangerous employee is the last one who makes up the bank deposit. Most asset theft involves cash, but other assets such as inventory can be vulnerable too.

Make use of accounting professionals. They can suggest ways that your internal controls can be improved. I have recommended to some businesses that they have their bank statements sent directly to their accountant for reconciliation to the books. An employee’s inability to control the bank reconciliation closes off a lot of schemes.

Always remember the old Ronald Reagan line “Trust, but Verify!” The best internal controls are worthless if they are not monitored and the employees ignore them. Statistically, at least one of you out there reading this is experiencing occupational fraud right now. Don’t let it be you!