Tag Archives: prevention

Skimming may sound small, but losses can be significant

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Skimming isn’t the biggest fraud threat for most businesses. The theft of cash receipts represents only 11% of asset appropriation schemes, according to the Association of Certified Fraud Examiners’ 2020 Report to the Nations. But with a median loss of $47,000, your business will likely feel the pain if it becomes a victim of skimming. Here’s what you need to know to prevent it.

Usual tactics

Skimming occurs when an employee steals an incoming payment before it’s recorded. In the most basic skimming scheme, a worker sells goods or services to a customer, collects payment and pockets the money without recording the sale. If the customer receives goods but no sale is recorded, skimming will cause a discrepancy between physical inventory counts and the company’s inventory ledger.

Crooked employees can also skim receivables. This generally is harder to pull off, because overdue accounts appear on the accounts receivable aging schedule. Perpetrators may try to cover their thefts by “lapping,” or borrowing money from one account to make up for a shortage in another.

What to look for

To detect skimming, look for infrequent bank deposits and consistent bank balance fluctuations as well as frequent shortages of cash on hand. If you suspect skimming, we can help you perform physical inventory counts to check if inventory levels match recorded sales. We can also review journal entries for false credits to inventory; irregular entries to cash accounts; and write-offs of lost, stolen, or obsolete inventory.

Your business can help prevent skimming by segregating employee duties. No one person should be responsible for collecting, recording, reconciling and depositing cash receipts. Instead, split up those duties among multiple employees.

Also consider implementing these other preventive measures:

  • Monitor spaces where employees handle cash with visible video cameras,
  • Require daily bank deposits,
  • Investigate no-sale and voided transactions,
  • Reconcile cash deposits to all cash and checks received,
  • Regularly reconcile inventory records to look for shrinkage, and
  • Provide an anonymous tip hotline for employees, customers and vendors.

Vulnerable industries

Certain organizations are more vulnerable to skimming. Small companies (those with less than 100 employees) and those in the education, real estate, and transportation and warehousing fields experience higher rates of skimming and may want to take extra precautions. Whatever your industry, contact us at the first sign of fraud.

© 2020 Covenant CPA

How you can help stop elder financial abuse

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It’s one of the most difficult types of fraud to unearth. But it doesn’t directly affect businesses or the average consumer — in large part because its victims rarely report it. In fact, they’re often prevented from doing so by perpetrators.

What is it? Financial abuse of seniors, or elder fraud. Many thousands of Americans are victimized each year and some observers fear these crimes are becoming more widespread. But you can help put a stop to elder fraud. Learn the signs and, as the saying goes, if you see something, say something.

Vulnerable targets

Older individuals with retirement savings, accumulated home equity and other significant assets make appealing targets for unscrupulous family members, caregivers, financial advisors, fiduciaries and scam artists who insinuate themselves into their victims’ lives. Seniors could be at risk due to isolation, cognitive decline, physical disability or health problems. Even the recent loss of a spouse can make an otherwise discerning individual unusually vulnerable.

Exact statistics on elder financial abuse are hard to come by, largely because victims hesitate to report it out of fear of their abusers or embarrassment. But various studies estimate that the percentage of the elderly who have experienced financial exploitation in the past 12 months is between 2.7% and 6.6%. Although there’s no reliable national estimate of the financial losses suffered by victims, one study concluded that financially abused seniors in New York state alone lose approximately $110 million annually.

Red flags

There are many red flags associated with the financial exploitation of vulnerable seniors. If you notice that an individual seems fearful or submissive toward a guardian or that a caregiver prevents the elder from speaking for him- or herself, start asking questions. For example, has the elder recently authorized a change in financial management, such as who has power of attorney? Or does the senior:

  • Have a new guardian or caregiver who conducts financial transactions, such as cash withdrawals, on his or her behalf?
  • Seem unusually reluctant to discuss financial matters?
  • Appear unable or unwilling to handle basic financial responsibilities such as paying bills or reviewing financial statements?

If you can gain access to the elder’s financial records, look for frequent large withdrawals (particularly daily maximum currency withdrawals from ATMs), insufficient fund notices, uncharacteristic attempts to wire large sums of money, and recently closed accounts. Any of these could suggest financial fraud or abuse.

Do your part

If you have vulnerable elderly relatives, friends or neighbors, do your part to protect them from fraud and exploitation. Report any concerns to law enforcement or your municipality’s senior services division. And if you’re a family member, consider engaging a forensic accounting expert to perform a thorough investigation.

© 2019 Covenant CPA

Health care fraud still stings Americans

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Even if you haven’t heard much about it lately, know this: Health care fraud is alive and well in the United States. Here’s a roundup of recent stats, law enforcement initiatives, common fraud schemes and how you can help prevent these crimes.

Just the facts

During fiscal year (FY) 2018, the Health Care Fraud and Abuse Control Program (a government initiative that coordinates federal, state, and local law enforcement) won or negotiated over $2.3 billion in health care fraud judgments and settlements. During the same period, the Department of Justice (DOF) opened 1,139 new criminal health care fraud investigations. In addition, the DOJ filed charges in 572 criminal cases.

What does this mean for you? The National Health Care Anti-Fraud Association estimates that health care fraud costs the nation at least $68 billion annually.

Many players, many games

Health care fraud can be perpetrated in a variety of ways by many different players. For example, insurance companies may bilk government programs such as Medicare and Medicaid by submitting false documentation, mishandling claims, charging excessive rates or failing to pass along discounts.

Fraud by insured employees is another problem. Employee-initiated schemes include submitting fraudulent claims — often in collaboration with shady medical providers.

Dishonest providers, including doctors, nurses, chiropractors and pharmacists, are responsible for a large volume of health care fraud. They may bill for unnecessary or harmful medical procedures, bill for procedures never performed, “upcode” inexpensive procedures to expensive ones, or bill for brand names and dispense generics. Corrupt practitioners may recruit healthy individuals and bill their insurance companies for costly medical services that are never provided.

What you can do

Fraud thrives in high volume environments. So, the more health care transactions your business or organization processes, the greater the potential for fraud to slip through undetected, and the more vigilant you must be.

You can help combat these schemes by strictly complying with audit obligations. For instance, randomly sample products and services invoiced and compare them with what was actually delivered to the patients. Looking for discrepancies can net you stolen goods and even large-scale thefts. It also sends a message to potential perpetrators that you’re watching.

Role of internal controls

In addition to contractual audits, internal controls play an important role in preventing and uncovering health care fraud. Contact us if your organization needs help building a robust internal control system.

© 2019 Covenant CPA

To be effective, you can’t fight fraud passively

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When it comes to reducing fraud loss and duration, active detection methods (such as surprise audits or data monitoring) are far more effective than passive methods (such as confessions or notification by police). This was a major finding of the latest Association of Certified Fraud Examiners (ACFE) Report to the Nations: 2018 Global Study on Occupational Fraud and Abuse. Yet many companies fail to use active methods to their full potential.

Active vs. passive detection

The ACFE study found that frauds detected using passive methods tend to last longer and produce larger losses than those detected by such active methods as:

  • IT controls,
  • Data monitoring and analysis,
  • Account reconciliation,
  • Internal audit,
  • Surprise audits,
  • Management review, and
  • Document examination.

These active methods of detection can significantly lower fraud durations and losses. For example, frauds detected by IT controls had a median duration of five months and a median loss of $39,000. By comparison, fraud detected through notification by police had a median duration of 24 months and a median loss of $935,000.

Surprise audits and proactive data monitoring and analysis can be especially effective ways to fight fraud. On average, victim-organizations without these antifraud controls in place reported more than double the fraud losses and their frauds lasted more than twice as long as victim-organizations with these controls in place. Yet only 37% of the organizations in the ACFE study had implemented surprise audits or data monitoring and analysis, however.

Close-up on tips

The ACFE categorized tips — the leading fraud detection method — as “potentially active or passive,” because they may or may not involve proactive efforts designed to identify fraud. Organizations that use hotlines for reporting misconduct detected fraud by tips more often (46% of cases) than those without hotlines (30% of cases).

More than half of tips came from employees, but nearly one-third came from outside parties, such as customers and vendors. To ensure that tips are used as an active detection method, an organization should set up a hotline and promote its use among employees, supply chain partners and others. If possible, users should be able to make anonymous reports.

Don’t wait for fraud to find you

Occupational fraud poses a significant threat to organizations of every type and size. Waiting to react until fraud rears its head can result in serious financial losses. Instead, adopt active detection methods that can be deployed continually. Contact us for help.

© 2019 Covenant CPA

Spotting and preventing cash register theft

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Many retail businesses implement careful controls over the use of their cash registers. For this reason, register-disbursement schemes are among the least costly types of cash frauds. Without such controls, however, businesses risk significant losses. Here’s how to make sure your company is doing everything it can to prevent this type of fraud.

Red flags

Issuing fictitious refunds and falsely voiding sales are a couple of common ways employees steal money. Both methods involve paying out cash without a corresponding return of inventory and usually result in abnormally high inventory shrinkage levels.

But high shrinkage is just one way to spot cash register disbursement fraud. Other red flags include:

  • Disparities between gross and net sales,
  • Decreasing net sales (increasing sales returns and allowances),
  • Decreasing cash sales relative to credit card sales,
  • Forged or missing void or refund documents,
  • Increasing void or refund transactions by individual employees, and
  • Multiple refunds or voids just under the review limit.

Any of these warning signs may warrant investigation. A fraud expert can help you determine whether discrepancies have innocent explanations or indicate a more serious problem.

Prevention measures

Your business can prevent cash register theft by taking preventive measures. These include having written ethics policies and providing employees with antifraud training. In many cases of register theft, several employees are aware that it’s happening. So be sure to provide a confidential hotline or other means for employees to report unethical behavior without fear of reprisal.

Your fraud detection and deterrence program should also include training internal auditors to regularly perform horizontal analysis of income statements. Horizontal analysis — which compares financial statement line items from one period to the next — can identify suspicious trends, such as an increasing number of cash refunds.

Professional help

Taking these simple steps can prevent significant losses. But signs of extensive cash register theft usually indicate bigger issues. Contact us. We can help you nip theft in the bud by strengthening internal controls and, when necessary, assemble evidence for criminal prosecutions and civil lawsuits. Call us today at 205-345-9898.

© 2018 Covenant CPA