Business Fraud and Dishonesty
- It might be prudent to check on your housekeeping before
a buyer does. It is downright embarrassing, let alone criminal
when a buyer or the buyer's accountant points out allegations
in your bookkeeping that appear to indicate that your bottom
line profits are not what they 'could and should' have been.
- When it happens, many times a seller's pride will get in
the way of the sale. Even as the broker I have lost enough listings
that I have learned to keep my big mouth shut when I see something
wrong. It is usually easy for an outsider to see. Even easier
for a trained spotter or mystery shopper.
- If you have a partner or bookkeeper that handles everything
for you, there are a few things you may want to consider or look
- Whenever a person in charge of the records limits access
to those records, it may be a 'red
flag' denoting fraud.
- The comment most often heard when this is discovered is "That
guys was my trusted friend."
- It can happen anywhere, at any time. Family, friends, partnerships,
- I have seen a restaurant owner have his daily sales increase
by $300 per day after his most trusted, eight year employee/manager
got married and moved away.
- Another customer with a chain of seventeen fast food pizza
franchises was losing more than $10,000 a week. It went on for
several months before being discovered by the CPA. This was a
member of the family with a gambling problem.
- Another was a nightclub losing $2,000 a night by an immediate
- A jewelry store customer had me go in as an undercover employee.
He had lost thousands and his three key employees were the most
trusted. I showed him the week spot and where to put up a camera.
It turned out to be the one I least expected!
- Here are a few 'red flags'
you may want to watch for that could be an indication of fraud
or employee dishonesty.
- Excessive drinking or gambling
- Refusing access to records
- Rewriting records for 'neatness'
- Coming into a 'sudden inheritance'
- Skipping vacations
- Overriding internal controls
- Attempts to dodge or direct an internal audit
- Working regular overtime
- Carrying excessive cash
- Bouncing personal checks
- Turning down promotions
- Maintaining a high lifestyle
- Has check-signing authority
- Intimidates staff and other co-workers
- Unusually high volume of product returns, damaged goods or
- Payroll and other expense increases without a corresponding
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