1. Education . If employees are aware of fraud and how it happens, they will be your best on-the-job sleuths.
2. Surprise Audits . When employees are aware that there will be random checks of their areas, they are more likely to be honest. They also will not feel singled out when it is .their turn. for an audit.
3. Hotlines . A mechanism for anonymous reporting of fraud encourages employees to look out for the best interests of the company, without fear of reprisal.
4. Assessment of Internal Controls . Companies need to take an honest look at what fraud prevention controls they have in place. They also need to be honest about whether or not those procedures and policies are being followed and whether or not they really work.
5. Background Checks . Having the right employees is the first step toward fraud prevention. Avoid employees with criminal backgrounds or dishonest job applications.
6. Open Door Policy . Make employees feel that it is okay to discuss concerns with management. And then when they do discuss their concerns, act accordingly. Ask lots of questions, but be supportive.
7. Perception of Fairness . Pay your employees fairly and try not to show favoritism. When employees feel cheated or devalued, they are more likely to justify stealing in their minds.
8. Employee Empowerment . Give employees the authority and confidence to make decisions and take action. The more involved and empowered employees feel, the more likely they are to look out for the best interests of the business.
9. Continuous Improvement . Management should be constantly looking for ways to improve policies and procedures. Fraud prevention is an ongoing, dynamic process that requires continuous evaluation and improvement.
10. Employee Involvement . Your employees are the people who are most aware of areas vulnerable to fraud. Talk to them and ask for their help in securing the company.s assets. Fraud prevention applies to everyone, from the top down.
The Texas Attorney General recently announced that it is investigating Mannatech, another multi-level marketing company scam That offers “nutritional supplements.” The company’s main products, Abrotose (formerly known as glyconutritional) is a sugar pill that the company’s representatives claim cure all sorts of illnesses, including cancer. (Someone even claimed it cured Down’s Syndrome!?!?!?!?) Continue reading
CNNMoney.com has published a recent article from Fortune Magazine about the fall of Milberg Weiss, dubbed the meanest law firm in America.
It’s a long article, but here are the high points.
The law firm of Milberg Weiss, along with Melvin Weiss and Bill Lerach, singlehandedly transformed securities class action litigation. The firm held itself out as helping the little people, and has claimed that they’ve collected $45 billion for cheated investors. Continue reading
Merge Technologies went from a $9.6 million profit in the third quarter of 2005, to a $10.8 million loss in the same period this year. The dramatic swing is related to a drop in sales from $35 million to $14 million for the quarter. Company executives say the revenue drop is because of one large contract in 2005.
The company is also recovering from the discovery of an accounting issue that forced Merge to restate its financial statements for 2202 through 2005. Merge reports that employee morale has been affected by the accounting problems, and that the company’s reputation with current and potential cusomers may have been damaged.
The net loss for the first nine months of 2006 totals $231.4 million, which includes a write-down of goodwill of $219.4 million. The prior year’s loss for the same period was far lower, at $5.4 million.
The six biggest accounting firms in the United States have suggested that companies should be forced to submit to forensic audits every three to five years. These types of engagements would be aimed at finding fraud.
The six firms include PricewaterhouseCoopers, Deloitte & Touche, Ernst & Young, KPMG, Grant Thornton and BDO Seidman. They say their proposal is aimed at starting discussions about what investors should expect from auditors when it comes to fraud. (Incidentally, traditional independent audits are not designed to detect fraud, and the users of financial statements are mistaken if they think the audits will detect fraud.)
One accounting educator remarked that audit firms should just change traditional audits to be “done properly” and detect fraud.
Here is a follow-up to last week’s post on my visit to New Orleans and my tour of hurricane-damaged areas.
These two are pictures of the levees being rebuilt: Continue reading
Sanjay Kumar, the former chief executive of Computer Associates International (now called CA Inc.) has been sentenced to 12 years in prison and fined $8 million for his guilty plea to charges of securities fraud and obstruction of justice.
Prosecutors say that Kumar created “35-day months” in order to book additional revenue after a quarter ended and the books should have been closed. He then engaged in a cover-up scheme meant to silence a witness to the accounting misdeeds. It is believed that the fraud cause the company to misstate revenue by $2.2 billion Continue reading
In late September, I visited New Orleans and took a tour of the hurricane-damaged areas. Specifically, we visited one of the hardest-hit areas, the Ninth Ward and Lower Ninth Ward.
These are just a few of the pictures that I took. Continue reading
The first winner of the popular reality television show “Survivor” was sentenced to 51 months in prison for his conviction on tax evasion charges. Richard Hatch, 45, was convicted in January of failing to pay taxes on the $1 million prize he won from the TV show, as well as other income. He was sentenced in May to 51 months in prison. Hatch was initially housed in a county jail in Massachusetts, and was later moved to a federal prison in Oklahoma. The judge handing down the sentence chastised Hatch for lying repeatedly on the witness stand.
Starting in September, the IRS is contracting with outside debt collectors to go after delinquent taxpayers. The American Jobs Creation Act of 2004 authorized the IRS to contract with private firms to do this work. The three firms currently under contract to perform these services are The CBE Group Inc., Linebarger Goggan Blair & Sampson, LLP, and Pioneer Credit Recovery, Inc. Continue reading