What’s your fraud risk?
One thing accountants do is look for possible fraud when they’re auditing business’s books. Recently the Journal of Accountancy published an excellent article on spotting fraud in your business. Here’s the lead from that article.
Every organization faces some risk of fraud from within. Fraud exposure can be classified into three broad categories: asset misappropriation, corruption and fraudulent financial statements. Answering the following 15 questions is a good starting point for sizing up a company’s vulnerability to fraud and creating an action plan for lessening the risks. The questions are based on information from the 2007 edition of the Fraud Examiners Manual published by the Association of Certified Fraud Examiners.
You can read the full list of questions on the Journal’s site. I want to highlight the question bout background and reference checks: “Does the organization conduct pre-employment background checks to identify previous dishonest or unethical behavior?”
Here are some of the checks that the Fraud Examiners suggest that you consider for “any key applicant.”
Background checks you can order:
criminal records and convictions
credit history
Social Security number trace
driving record
Checks that you should do yourself include:
previous employment
employment references
personal references
education verification
professional license verification
Checking into the background and qualifications of everyone you consider hiring should be a common business practice for you. It can help protect you from both workplace violence and from fraud.
Library volunteers upset over background checks
The Fayetteville, Arkansas Public Library has a problem. For the last several months, the staff has been working on a policy that will protect members of the public, especially children, from predators while they’re at the library. How could anyone object to that?
Well, it depends on how you do things. The Northwest Arkansas News reports on a brouhaha over background checks for volunteers. Here’s the story.
First, the library ran unannounced criminal background checks on employees. The employees learned of the checks after the fact at a staff meeting.
Then, a rumor surfaced that the library was going to run criminal background checks on all of the few hundred library volunteers. In fact, no decision or recommendation had been made on that issue, but the combination of unannounced criminal checks on staff and possible background checks on volunteers sparked a number of volunteer resignations and letters to the Executive Director of the library and to the library board.
As a purely logical matter, checking out staff and volunteers at a place where children and other vulnerable people congregate seems like a good idea. So where did things go wrong? Here are some lessons you can learn from the Fayetteville library experience.
Lesson: unannounced background checks when you haven’t done them before are going to get people upset. Tell people you’ll be checking and why.
Lesson: You should have good reasons for checking on people and you should communicate those reasons. One objection to the idea of criminal background checks on all volunteers was […]
Checking out customers
This is a “man-bites-dog” story about background checks. The South Florida Sun-Sentinel recently carried a story about how charter boat captains are starting to do background checks on their customers.
This isn’t as weird as it might sound. It turns out that those charter boat captains have a good reason. They don’t want to suffer the same fate as the captain and crew of a boat named the “Joe Cool.” Here’s how the Sun-Sentinel tells the story.
The 47-foot Joe Cool fishing boat left Miami on Sept. 22 with a four-person crew and two men bound for the Bahamas. Two days later, the men were found in a life raft and the boat without its crew. Despite claiming hijackers had killed the crew, dumping their bodies overboard, the men were later charged with murder.
So now the charter captains are going to use background checks to delve into their customers’ pasts. It may seem weird, but it’s really good business practice.
What they’re doing is not much different from what an employer does when he or she investigates a prospective hire. You want to make sure the person you’re bringing in to your company won’t be dangerous to you or to others and won’t supplement their earnings by stealing from you.
What the charter boat captains are doing isn’t much different from what a landlord does, checking on prospective tenants to weed out any with a history of violence who might threaten other tenants. It just makes sense.
The general rule is this, if […]
Bill to combat elder abuse is still going nowhere
Maybe it’s because we’ve got older relatives in a nursing home that this story makes me so angry. Here’s how it was reported in the Chicago Tribune.
The Elder Justice Act, designed to combat abuse, neglect and exploitation of older Americans, still gathers dust in Congress. It has been doing that for five years, odd for a bill with few visible opponents.
That last part gets my dander up, the part about “few visible opponents.” If that’s true then why haven’t we seen action on this? I mean, if you all think it’s a good idea, what’s the holdup?
There’s more here that got my nerve endings smoking. Here’s another paragraph from the story.
Sen. Herb Kohl (D-Wis.), head of the Senate Special Committee on Aging, backs a separate measure requiring criminal background checks for newly hired nursing home workers, a provision Coldren said might have prevented the rape of her grandmother. But nursing homes have made it clear they don’t want to incur the extra cost of those background checks, so the federal government would have to bear the burden.
The nursing home industry’s position seems to be that it’s better to increase the risk of abuse of frail and vulnerable people than it is to spend $20 or so per newly hired staff member on a criminal background check. That’s sick.
While the politicians dither on this one, you may want to add “Does the nursing home conduct criminal background checks on prospective employees?” to any checklist you’re using to evaluate a […]
Background checks slow down airport hiring
The News-Tribune in Tacoma, Washington weighs in with a story about the impact of the anti-terrorism background checks on businesses. These businesses are connected with airports like Sea-Tac.
Problems with a new federal background check for potential airport employees could slow baggage delivery, delay cargo shipments and cut the hours of airport vendors at Seattle-Tacoma International Airport and other airports throughout the country as the holiday travel season approaches. At Sea-Tac alone, more than 400 new hires are awaiting clearance from the federal Transportation Security Administration before they can be issued badges that allow them to work beyond the airport’s security checkpoints. Some of those newly hired workers have been waiting since Oct. 1 to see whether they passed the federal government’s security muster to work in secure areas of the airport. That’s the date that the TSA imposed a requirement that new hires pass not only a regular criminal background check but a new terrorism database search before they receive a security clearance.
If you’ve got a business that’s tied to an airport, you should dig deeper on this issue. You may have to do some contingency planning.
If you don’t have an airport-connected business, there’s no direct impact of the Homeland Security requirements, but there are lessons to be learned.
Even if your background check process isn’t as rigorous as what the government’s going for, it can still pose a dilemma for you. You don’t want your background check to get in the way of hiring someone you want, but […]
Embezzlement: it could happen to you
Susan Gunn wrote an excellent article that appeared in the September 2007 issue of Dental Economics. Her title: “Embezzlement Wake-up Call.” You have to register to see the whole article, but the registration is free.
She surveyed dental practices and asked them about embezzlements. Then she analyzed the responses.
She found that the embezzler could be anyone: “assistants taking cash payments chairside, front office managers taking patient checks, spouses and family members taking from other family members, CPAs diverting funds, even the dentist!”
Losses ranged from $35 to $900,000. They averaged $104,585. But Gunn points out that the money loss was only part of the problem.
Discovery and recovery time ranged up to 360 hours of work. And then there is what Gunn calls the real cost: “destroyed trust, time spent in discovery and recovery, shattered relationships, lost patients and revenue, bad press, and last, but certainly not least, health issues resulting from the ongoing stress.”
What are the warning signs of embezzlement? They’re pretty standard and you’ve probably heard them before. Watch out for unchecked control of operations with no independent checks. The embezzlers also worked long hours and never took sick days or vacation.
What about prevention? Your accountant can help you put systems in place that will provide checks on the work of individuals who handle money. Remember that they only work if you implement them.
That’s part of a two-pronged prevention program. The other part is background and reference checking. Referring to the cost of embezzlement, Gunn says, this. “It takes much […]