Embezzlement Scheme with Alleged Losses of $13.4 Million

Trusted employees are continuing to victimize companies via fictitious shell-companies, as demonstrated by an alleged embezzlement matter, based upon litigation filed in Milwaukee and Chicago. A former MillerCoors executive has been indicted for a multi-year fraud scheme involving a Chicago-based beer company, allegedly perpetrated by 14 people and 15 shell-companies.

David Colletti, a former Senior Director, submitted and approved fraudulent invoices for services never rendered for an 11-year period.Typically, with such schemes the victim business is in control of the documentation that would point to the misappropriations.For example, accounts payable processing documentation that would include the invoice received, check requests and funds disbursed.This contrasts with off-book schemes such as revenue diversion, where there will be little evidence retained.

Intensive forensic tracing procedures for a limited scope period would be effective in detecting this type of scheme and would be relatively inexpensive in comparison with the multi-millions lost in this instance.Such procedures would include tracing disbursements to supporting invoices, receiving reports for receipt of goods or services and verification of address legitimacy.

The improprieties at MillerCoors were uncovered by a diligent accountant who took exception with the appearance of a fraudulent invoice.It was determined that the fictitious vendor address was that of a former employee of Miller Brewing and MillerCoors who had worked closely with Colletti for years.

Sources: http://www.chicagotribune.com/business/breaking/ct-millercoors-fraud-0507-biz-20150506-story.html


Occupational Fraud Prevention – Simplified!

In a recent Entrepreneur Magazine article, business owners have collected their top suggestions for preventing occupational fraud, or fraud committed by employees, into four bullet points:
1.Establish a code of conduct to convey what is acceptable within an organization. Ensure that owners and upper management do not exempt themselves to set a proper tone-at-the-top.
2.Set up organization checks and balances. Office managers, bookkeepers and accountants with unrestricted access and control pose serious risk-of-loss. To minimize risks, segregate functions and conduct sufficient oversight and monitoring.
3.Institute policies to segregate duties and protect sensitive materials. For example, the person reconciling the bank statement should not be able to enter or modify transactions in the accounting system. Lock up sensitive documents, control custody of keys and computer access. Keep in mind that the ability to initiate an electronic disbursement is like having access to a blank-check and signature-stamp.
4.Watch employees’ behavior and pay attention to your gut instinct. Management should always investigate tips and inconsistencies, such as customer returns for repairs without record of original sale. Red flags for employee behavior would include not taking vacation, isolationist tendencies and giving a customer excessive attention.

See article in Entrepreneur Magazine at http://www.entrepreneur.com/article/244607

Fraud Risks, Methods Differ for Small Businesses

By Mike Rosten, Special to the Las Vegas Business Press:  Year after year, the Association of Certified Fraud Examiners reports that small businesses, those with fewer than 100 employees, are victimized by fraud more often than larger companies. The association’s 2014 Report to the Nations states, “Small businesses are both disproportionately victimized by fraud and notably under-protected by anti-fraud controls, a combination that makes them significantly vulnerable to this threat.

”The association also says median losses for small businesses are at $154,000 per case reported, which isn’t much less than the $160,000 median loss for large entities (more than 10,000 employees). But when the losses are calculated as a percentage of revenue, their overall financial impact is much greater to small businesses.

Small businesses often have one employee who covers multiple job duties, to save money or because one job responsibility may not justify the expense of hiring a full-time person. This can invite trouble.

For example, in 2014 a former office manager for an electrical company in Oklahoma City was sentenced to 27 months in prison and required to pay back about $308,000 stolen through forgery and signing false tax returns. This office manager was responsible for paying the company’s bills, depositing checks into the company bank account, and maintaining the company’s books and records. As a trusted employee in a small company, the individual was given multiple job responsibilities and left alone without significant supervision, which created an opportunity for fraud.

Besides the disproportionate financial of effect fraud, small-business owners also face different sort of risk than their larger counterparts. The association says check tampering occurred in 22 percent of the small-business cases they reviewed compared with 7 percent of cases in larger companies. Also, payroll and cash schemes occurred twice as often in small businesses as larger organizations.Armed with this information, small-business owners should consider implementing these anti-fraud controls:

Add an anonymous fraud hotline: Tips are by far the most common detection method, and employees account for almost half of the tips that uncovered the fraud cited in the association’s report. Make it easy for employees to report any red flags they might see.

Add additional employees. Put them in areas such as accounting, operations and sales – departments where fraud is most often committed. Divide duties: Require a different person to issue and sign checks or require two signatures per check.

Implement surprise audits: Conduct them regularly if adding an additional employee is not a possibility.

Mandate vacation time for employees. Employees who are unwilling to skip a day of work may be hiding something.

According to the Small Business Administration, small businesses make up 99.7 percent of employers in the United States. Unfortunately, the many small businesses that contribute positively to Southern Nevada’s employment and economy are disproportionately at risk for losing money because of employee fraud.

Even with the above-listed internal controls listed in place, there is still a risk for fraud. If an organization suspects an employee is stealing, a professional certified fraud examiner can be hired to investigate the financial records to assess the loss and suggest ways to tighten internal controls to prevent a recurrence.

Michael L. Rosten, a CPA and certified fraud examiner, directs the forensic accounting and litigation services at Piercy Bowler Taylor &Kern, which includes fraud investigations. He can be reached at mrosten@pbtk.com.

Who’s Auditing the Internal Auditor?

Audit Committees, CFOs and other top management rely on the internal audit function to get to the bottom of things. But a fair question is, “Who’s auditing the internal auditors?”

Another question to ask, “Is Internal Audit continually looking for ways to improve their operations?”

The Institute of Internal Auditors (IIA) requires the chief internal audit executive of an organization to create and maintain a quality assurance and improvement program covering all aspects of the internal audit function of that organization (International Standards for the Professional Practice of Internal Audit – Standards) in Standard 1300.Assessments of this program are required both internally and externally (Standards 1310).

Internal assessments require continual monitoring of the internal audit function and periodic internal assessments by internal audit or by other internal individuals who are sufficiently familiar with internal auditing practices and concepts (Standards 1311).

Every five years, the IIA and the Standards require an internal audit function to receive an external assessment of its internal audit activities (Standards 1312).Both the internal and external assessment require an evaluation of the internal audit function with regards to its conformance with the International Professional Practices Framework (IPPF), which consists of the Definition of Internal Auditing, the Code of Ethics, and the Standards.

External assessments come in two forms:(1) an external quality assessment with the review and report by an independent team; or (2) an internal self-assessment with a report validation by an independent validator.

PBTK Can Assist.

The professionals at PBTK are well versed, qualified, trained and experienced in providing both kinds of external assessments for many different industries and organizations. Please contact Thomas Green (thomas.green@pbtk)
or Ryan Schmidt (ryan.schmidt@pbtk) or phone us at (801) 990.1120 or (702) 384.1120 for a free consultation.