An Ounce of Prevention

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If you haven’t heard by now, internal fraud is expensive, costing companies an average of 6 percent of revenues each year. Employees are in an excellent position to steal the company blind. Particularly for those in upper management, access to assets is easy to come by.

With an estimated $3.7 trillion stolen annually by employees around the globe, companies should be highly motivated to invest in fraud prevention. Creating and implementing effective policies and procedures is not cheap, but it is far less expensive than exposure to internal fraud.

Companies should develop a comprehensive fraud prevention program that impacts all areas of a company. Such a program has three critical parts: education, investigation and proactive prevention.

Education
Internal fraud is most commonly discovered through tips from employees, customers or vendors. Since employees are inclined to report misdeeds, it makes sense to give them the knowledge to help the company. Company-wide education of employees is, therefore, an integral part of a fraud prevention program.

I recommend broad-based fraud education for all employees. More specific anti-fraud training should be presented by department and position within the company.

It can also be helpful to include rank-and-file employees in the development and presentation of anti-fraud training. They see the daily workings of the company and may be able to identify high-risk areas. Further, the inclusion of peers in the training may help connect with front-line employees.

Investigation

While fraud prevention efforts are aimed at stopping theft, the need for investigations will never be abated. In fact, investigations have a deterrent effect on would-be thieves. When employees believe management is actively seeking out fraud and punishing offenders, they are less likely to commit fraud.

Effective investigations should have a well-defined plan, a reasonable division of duties, and a central point of contact. As evidence is gathered and witnesses are interviewed, it is important to bear in mind that this information may someday be presented to a court.

Ideally, the need for investigations will decrease as your company’s fraud prevention efforts increase. However, it is necessary to have resources available to conduct competent investigations.

Proactive Prevention

The most extensive part of a comprehensive fraud prevention program is the creation and implementation of proactive preventive techniques. These policies and procedures should go above and beyond traditional internal controls and government regulations.

Effective anti-fraud policies outline expected behaviors and encourage disclosure of conflicts of interest. “Tone at the top” may be an over-used cliché, but it really is an important part of any anti-fraud effort. It is unrealistic to expect honesty from lower-level employees when management is not truthful.

Every proactive procedure should have a true purpose relative to the prevention of fraud. It is useless to have ineffective controls just to say “we did something.” For maximum effectiveness, consult an anti-fraud expert. Those who have investigated hundreds of frauds are in the best position to develop the most relevant controls.

Development of a good prevention program is serious business. It can take up to two years to implement a full-blown program. The process really never ends, however. A company committed to fraud prevention will continuously monitor and improve control policies and procedures.

Pound of Cure
It may sound daunting to implement all three parts of the fraud prevention program at once. It is true that fraud prevention is not an easy process, and it is not completed in a few weeks.

An effective program can be implemented efficiently with the right people and the right expertise. It may be complex and time consuming, but the cost and pain to implement effective controls is small in comparison to actual losses.

Each and every step toward better fraud prevention controls is important. Small steps are better than no steps, and companies can slowly build upon small steps to work toward a more comprehensive plan.

Lifestyle Analysis in Family Law Cases

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LifestyleAnalysisInDivorceCasesSmallThis article was originally printed in the ABA Section of Family Law eNewsletter, November 2011.

One of the chief concerns in a divorce or child custody case is identifying the true income of one or both of the parties. It is not unusual for such a case to include allegations of hidden income or assets. It is common for a closely held business to suspiciously encounter declining sales and profits following the filing of a family law case.In each of these instances, properly determining the income of the party is critical to getting a fair and equitable settlement, maintenance award, or child support award. Until you have the correct numbers, the attorney may find it very difficult to decide what is fair or in the best interest of the client.
Continue reading

Man on Top, a Film About Multi-Level Marketing (MLM)

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man on top movieMan on Top is a documentary about multi-level markeing (MLM). It being directed and produced by Paul Mathieu. The film tells the story of MLM and how it has cheated consumers out of billions of dollars with its fake business opportunity:

Man On Top is the story of multi-level marketing, the world’s most notorious business model.

A product of the post-war 1950’s economic boom, the proliferation of these thinly veiled pyramid schemes has enabled companies such as Amway and Herbalife to prey upon the hopes, dreams, and ambitions of millions of unsuspecting citizens, both in the U.S. and worldwide.

These economic cults, disguised as legitimate business opportunities, use coercive psychological tactics to trap the unsuspecting participants into a culture of deceit that promises a false American Dream. The results: empty bank accounts, shattered friendships, and billions of dollars of annual profit for the founders of MLM’s.

The film will feature whistleblowers, industry experts, government regulators, and MLM participants who detail their experiences within the tumultuous, dog-eat-dog business of multi-level marketing.

Our help is needed! Please contribute to the Man on Top Kickstarter campaign here.

Fraud Prevention on the Cheap

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One common misconception among small business owners is that fraud prevention is expensive. And like anything else in this world, it can be expensive. A company that strives to eliminate virtually all opportunities for fraud by employees can spend a chunk of money doing so.

But it’s not always necessary to spend lots of money on fraud prevention. And it’s not always possible for a small business owner to spend a lot on fraud prevention. Let’s face it… budgets are tight and big new projects aren’t often possible. Continue reading

Jennifer McKinney Fraud Update

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It’s been a while since we have looked at the many legal troubles of Jennifer McKinney (aka “MckMama”) and her husband Israel McKinney. In short, Jennifer and her husband have repeatedly stiffed creditors for hundreds of thousands of dollars, losing FOUR houses and having their bankruptcy filing denied after trustee Gene Doeling busted them for lying in their court filings.

This week, the McKinneys lost the fourth house. Marine Credit Union obtained a default judgment against them after they failed to even respond to the lawsuit filed against them for failing to make payments on their house. The bank got a judgment of $334,105 (plus interest) for the house, and $2,528 for attorneys’ fees. The McKinney’s (well, really the bank’s) house at W5441 Innsbruck Road in West Salem, WI will be sold at a sheriff’s auction. Marine Credit Union can pursue the McKinneys for any deficiency (if the sale price of the house does not cover the total that they owe). Continue reading

Fostering a Culture of Integrity in Your Business

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The average business loses approximately 5% of revenues to employee fraud. The employees are running off with money, fixed assets, and business opportunities. They are taking kickbacks from suppliers who overcharge for their products and services, and pushing contracts toward friends and relatives. Executives are manipulating financial statements to increase stock prices and impress lending institutions.

These types of dishonest activities can be decreased, however, by companies that take action to prevent and discourage fraudulent behavior. An extensive fraud prevention program might be the most effective way to reduce fraud opportunities, but following a recent flurry of regulatory requirements, many companies aren’t willing to invest more in revamping policies and procedures.

Activities that were traditionally thought to deter and detect fraud, such as independent audits and internal examinations, have been found to be less effective than previously believed. Those types of procedures may still provide some valuable business benefits, but they should not be relied upon as a primary tool for detecting and preventing fraud. Continue reading

Roca Labs Complaints

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Remember Roca Labs? The company that is suing all sorts of meanies who said mean things about the company and its jars of goop? Well, Marc Randazza (counsel for Opinion Corp and a defendant in a separate lawsuit Roca Labs brought against him) unearthed some interesting public records regarding Roca Labs:

Ladies and Gentlemen, I’m just gonna leave these right here for any of the people out there who have felt the victimizing thwack of Roca Labs’ censorious sting. You see, Roca Labs is very very very upset if you say anything bad about them.

So upset that they file legal claims and bar complaints to try and shut you up if you dare speak out.

Meanwhile, feast your eyes on this stuff.

This Roca Labs user got sick from the product (Roca User got sick)

Here is a complaint about their deceptive trade practices (Deceptive trade practices)

Here is another Roca Labs user who got sick and complained about their trade practices (Sick and trade)

Here is a report from an FDA Special Agent documenting a consumer report about Roca Labs’ product allegedly being packaged in a garage with cockroaches on the floor, with no gloves or protective gear (spcial agent)

If you’re being sued by Roca Labs (or if you’re handing cases or complaints against them) please enjoy these documents with my compliments.

I can see why they might have very hurt feelings.