Trust But Verify
By: Jim Keeslar, CPA
“Trust but verify.” Three simple words. Fourteen letters. Pretty basic, but oh, so important, especially in the times we find ourselves in. In the last five years we have seen greed topple some large corporations and some seemingly powerful individuals. Now during a prolonged recession, we at BCG & Co. have seen a significant uptick in fraud. And I am not talking about stories in the newspapers about someone somewhere else. I am talking about right here in Akron, Ohio! We have seen use of corporate credit cards for personal expenses, the altering of documents to support invalid expense reimbursements, checking account theft, the theft of corporate funds meant for retirement funding and fictitious numbers being reported to a bank. Five different fraud schemes in the last three months alone! Years ago, there was a time when we would go a year or two before investigating a potential fraud scheme. So why so much activity now? Well, the economy has put a great deal of additional pressure on individuals causing them to do things they wouldn’t have thought of before.
For more on this whole topic, I have to look no further than our own “fraud-buster”, Ray Dunkle, who is a Certified Fraud Examiner (Ray also provided me with the title for this article). Ray noted, “many people think, ‘it won’t happen to me.’ Then before you know it, you hear them saying, I can’t believe it! He has been a long-time employee, a great performer. I never thought he would steal from me!” Ray goes on to say, “you don’t hire people expecting them to steal from you. You have to have some trust, but you must also be skeptical”.
So as an employer or board member, what are you to do? Again, I turned to Ray. “First, and foremost, make sure the organization has adequate internal controls. Controls are not just for large companies and you can’t be too small for some form of controls. Proper internal controls can help deter and detect theft. An audit is helpful, but it doesn’t always detect fraud. We are seeing more companies that are implementing internal audit procedures—either themselves or contracting with firms such as ours. Controls are important, but you want to perform periodic tests of those controls to make sure they are functioning properly. Internal audit procedures will do just that.”
I asked Ray for a closing thought and he said, “You know, companies will spend money on fire insurance or general liability insurance hoping they will never need it. Companies need to understand that spending money to prevent fraud and to detect honest, but costly, mistakes is no different. Putting controls in place or having internal audit procedures performed on a periodic basis will have a cost associated with it. But just like a fire, if theft hits, it will be more costly than what you would pay to “insure” against it. I would also add, trust is not a control, but a feeling. It is ok to trust, but remember to verify!”
Tags: Audit, Fruad, Internal Controls