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Growth is an exciting phase for any company. It signifies success, market acceptance, and potential for future expansion. However, along with growth comes an increased complexity in operations, which can introduce new risks, especially in terms of fraud. For companies that have expanded their product lines or services without updating their fraud risk assessments, the consequences can be severe. This blog post will delve into why it's crucial to conduct thorough fraud risk assessments during periods of growth and how neglecting this can put a company's future at risk. Understanding Fraud Risk Assessments Fraud risk assessments are systematic evaluations of an organization's susceptibility to fraudulent activities. These assessments identify vulnerabilities within a company's processes, systems, and controls that could be exploited by internal or external parties. They are essential for maintaining the integrity of financial reports, safeguarding assets, and ensuring compliance with legal and regulatory requirements. Growth and New Risks As companies grow, they often introduce new products or services, expand into new markets, or undergo organizational changes. Each of these developments can introduce new risks that were not previously considered. Here are a few examples of how growth can lead to new fraud risks: 1. New Products and Services: Launching new products or services can create opportunities for fraud. For instance, a company entering the digital services market might face cyber fraud risks that were not present with its traditional products. 2. Geographical Expansion: Expanding into new regions can expose a company to different regulatory environments and local fraud schemes. Understanding these local risks is critical to preventing fraud. 3. Increased Transactions: Growth often leads to a higher volume of transactions, which can make it easier for fraudulent activities to go unnoticed within the larger dataset. 4. Complex Supply Chains: A more extensive supply chain increases the risk of fraud through vendor kickbacks, counterfeit goods, or false invoicing. 5. Organizational Changes: Rapid growth can lead to organizational restructuring, which might disrupt existing internal controls and create opportunities for fraud. The Consequences of Ignoring Fraud Risk Failing to reassess fraud risk in the face of growth can lead to several negative outcomes, including: Fraud can result in significant financial losses, impacting profitability and shareholder value. Reputational Damage: A company’s reputation can be severely damaged if fraud becomes public, leading to loss of customer trust and loyalty. Legal and Regulatory Penalties: Non-compliance with anti-fraud regulations can result in hefty fines and legal actions. Operational Disruption: Fraud investigations can disrupt daily operations, diverting resources away from core business activities. Implementing Effective Fraud Risk Assessments To mitigate these risks, companies should integrate fraud risk assessments into their growth strategies. Here’s how: 1. Regular Updates: Fraud risk assessments should be updated regularly, especially after significant changes in the company's operations or structure. 2. Comprehensive Approach: Assessments should cover all aspects of the business, including new products, services, and markets. This involves understanding the specific fraud risks associated with each area. 3. Employee Training: Staff should be trained to recognize and report fraudulent activities. This creates a culture of vigilance and accountability. 4. Technology Utilization: Implement advanced technologies like AI and machine learning to monitor transactions and identify unusual patterns that may indicate fraud. 5. Third-Party Audits: Engaging external auditors can provide an unbiased perspective on the company’s fraud risk and the effectiveness of existing controls. 6. Whistleblower Mechanisms: Establish clear and confidential channels for employees to report suspected fraud without fear of retaliation. Conclusion Growth is a double-edged sword. While it brings numerous opportunities, it also introduces new risks that need to be managed proactively. Fraud risk assessments are not just a regulatory necessity; they are a strategic tool that helps safeguard the company’s future. By continuously evaluating and updating these assessments, companies can protect themselves from the potentially devastating impacts of fraud and continue to grow with confidence and integrity. In today’s fast-paced business environment, staying ahead of fraud risks is not just a matter of good practice—it’s a critical component of sustainable growth and long-term success. If your organization has not conducted a fraud risk assessment lately, or if you're not sure where to start, we can help. It's what we do. For more information, visit our website today at www.BlevinsAssociates.com

If not, you are at risk for fraud. If you do not have internal controls or have not refreshed your fraud risk program, now is the time to do it. It's far less costly to prevent fraud than it is to be a victim of it.

In the Association of Certified Fraud Examiner's 2024 Report to the Nations, the number and estimated costs associated with each fraud scheme "bucket" has some alarming numbers. Notable is that a typical fraud case lasts longer than 12 months before it's detected. Not good. Take a look - these are stats for "a typical organization". This graphic issustrates the importance of effective fraud risk management within any organization. If you need help protecting your company, contact us .

In today's intricate business environment, the looming threat of fraud poses significant challenges, jeopardizing both the financial health and reputation of organizations globally. As a Certified Fraud Examiner (CFE), I recognize the urgency of adopting proactive measures and maintaining vigilance against increasingly sophisticated fraudulent tactics. My expertise in conducting occupational fraud risk assessments plays a pivotal role in fortifying my clients’ businesses against potential threats. At the core of a CFE’s skill set lies the ability to unravel, analyze, and mitigate risks associated with fraudulent activities. Our responsibilities extend beyond mere detection; we systematically evaluate vulnerabilities within an organization's operations, processes, and internal controls. CFE’s bring a unique blend of skills to the table, combining forensic accounting, investigative prowess, and a profound understanding of fraud methodologies. We also identify red flags, patterns, and anomalies indicative of fraudulent behavior. In my consulting practice, we specialize in: Identifying Fraud Risks: We delve into the intricacies of business operations to pinpoint areas vulnerable to fraudulent activities. This involves scrutinizing financial transactions, internal controls, procurement processes, and employee behavior to uncover potential risks. Assessing Internal Controls: We go beyond identification to evaluate the effectiveness of existing control mechanisms in mitigating fraud risks. This entails assessing the design and implementation of internal controls, segregation of duties, and adherence to regulatory standards. Conducting Investigations: In cases of suspected fraud, we leverage our investigative acumen to uncover the truth. From gathering evidence and interviewing stakeholders to analyzing financial data, we employ a systematic approach to uncover fraudulent schemes and perpetrators.   Fraud risk assessments serve as a proactive mechanism for organizations to preemptively identify and mitigate potential threats. By partnering with us to conduct comprehensive assessments, businesses stand to gain several pivotal advantages: Preventative Measures : Fraud risk assessments empower organizations to proactively identify vulnerabilities and implement preventive measures before fraudulent activities escalate. By fostering a culture of vigilance and accountability, businesses can deter potential perpetrators and safeguard their assets. Cost Savings : The financial repercussions of fraud can be staggering, encompassing monetary losses, legal fees, reputational damage, and regulatory penalties. By investing in robust fraud risk assessments, organizations can mitigate these risks and avert potentially catastrophic financial losses. Enhanced Compliance : In an increasingly regulated environment, compliance with regulatory standards is non-negotiable. Fraud risk assessments enable organizations to demonstrate due diligence and compliance with regulatory mandates, thereby mitigating the risk of legal sanctions and reputational harm. Preservation of Reputation : The fallout from a fraud scandal can tarnish an organization's reputation irreparably, eroding stakeholder trust and credibility. By proactively addressing fraud risks through comprehensive assessments, businesses can uphold their integrity and preserve the trust of customers, investors, and partners. In an era defined by evolving threats and unparalleled complexities, the role of Certified Fraud Examiners in conducting fraud risk assessments cannot be overstated. By leveraging our specialized expertise, CFEs enable organizations to navigate the treacherous waters of fraud with confidence and resilience. Proactive fraud risk assessments are a strategic imperative—one that safeguards assets, preserves reputations, and fortifies the foundations of integrity and transparency. The collaboration between organizations and CFEs is a testament to our unwavering commitment to combat fraud and uphold the principles of accountability, transparency, and ethical conduct in the corporate landscape.

By: Michael Blevins, CFE Restaurants, like any business, need robust internal controls to ensure the quality of goods and services, maximize profits, and mitigate fraud and theft. Effective internal controls are particularly vital for restaurants due to the industry's unique characteristics, including frequent cash transactions, high daily transaction volumes, numerous employees handling cash, and rapid employee turnover. These factors complicate the establishment and enforcement of internal controls. The Fraud Triangle Preventing fraud and embezzlement is a primary focus of internal control systems in restaurants. According to the Fraud Triangle theory, three conditions are necessary for fraud to occur: Need : Economic or psychological deficiencies driving individuals to steal. Opportunity : Lapses in fraud prevention enabling dishonest actions. Rationalization : Justifying the act of theft.     Key Areas of Internal Control Cash Handling Cash theft is a prevalent and challenging issue in restaurants. It can happen before transactions are recorded or after, but before deposits are made. To prevent cash theft, restaurants should: Limit and know check signers. Reconcile bank accounts monthly and review reconciliations. Segregate accounting functions, such as separating cash management from disbursement documentation. Compare daily deposit reports with bank deposit records and point-of-sale (POS) reports. Inventory Management Food and beverage theft is a significant problem due to their portability and universal usage. Internal controls should include: Independent physical inventory checks compared to book inventory. Use of pre-printed inventory forms, orderly item arrangements, and dual-person inventory counts. Investigating and approving significant inventory discrepancies. Restricting inventory access and securing stock in locked facilities. Payroll Payroll is the largest expense for most restaurants, making internal controls in this area critical. Restaurants should: Segregate responsibilities, such as authorizing employment and wage rates, maintaining the payroll system, generating checks, and reconciling payroll bank accounts. Routinely examine payroll records, including employees' names, authorized gross pay, hours worked, deductions, and net pay by an independent authority. Accounts Payable Internal controls in accounts payable are crucial to prevent fictitious vendor creation and cash misappropriation. Restaurants should: Establish control over received vendor invoices. Compare vendor invoices with receiving reports and purchase orders. Cancel all vouchers, invoices, and supporting documents when paid. Restrict new vendor setups and segregate duties among payroll personnel. Financial Controls Financial controls involve reviewing financial statements and leveraging technology, such as POS systems and financial accounting software. Effective measures include: Limiting POS system access and functions to specific employees. Creating rigorous cash and credit card tracking systems. Monitoring and analyzing income statements and balance sheets to avoid unexpected adjustments. Routinely inputting sales, invoices, and payroll records, and reconciling all balance sheet accounts. Using financial statements to monitor weekly and monthly results promptly.   Case Study: The Importance of Robust Internal Controls A study by the Association of Certified Fraud Examiners (ACFE) found that the average loss per fraud incident in the hospitality industry was $62,000. In one notable case, a restaurant in Chicago discovered a long-time employee had embezzled $300,000 over several years due to weak internal controls. The employee manipulated payroll records and created fictitious vendors to divert funds. Implementing stricter controls, such as segregation of duties and regular audits, could have prevented this fraud. Conclusion Restaurants' susceptibility to theft necessitates robust internal controls. By scrutinizing every operational function and establishing comprehensive internal controls, restaurant owners can effectively mitigate fraud and embezzlement risks. Investing in these systems builds a solid financial foundation and enhances the likelihood of detecting and preventing fraudulent activities. Michael Blevins is a Certified Fraud Examiner and the founder of Blevins Associates Consulting.  Blevins Associates Consulting  specializes in fraud within the restaurant industry.  Michael can be reached at Michael@BlevinsAssociates.com  or by phone at 760-206-3717. #CertifiedFraudExaminer #RestaurantFraud #BlevinsAssociatesConsulting #ProtectYourBusiness #FraudInRestaurants #InternalControls

Fraud can lurk within the shadows of any organization, a threat that undermines trust, integrity, and ultimately, the success of a business. From embezzlement to falsifying records, workplace fraud poses a significant risk to the financial health and reputation of a company. In this blog post, we delve into the world of workplace fraud, shedding light on effective strategies to detect, prevent, and mitigate this insidious threat. Understanding Workplace Fraud Workplace fraud manifests in various forms, often camouflaging itself behind seemingly legitimate transactions and activities. Misappropriation of assets, financial statement manipulation, and corruption are just a few examples of how employees can exploit their positions for personal gain. Recognizing the red flags and vulnerabilities that leave organizations susceptible to fraud is the first step in fortifying against this clandestine danger. The Cost of Fraud The repercussions of falling victim to workplace fraud extend beyond mere financial losses. Trust among employees and stakeholders erodes, tarnishing the reputation of a company for years to come. The aftermath of a fraud incident can be devastating, with legal battles, damaged relationships, and a diminished market standing all part of the fallout. It's clear that the stakes are high when it comes to safeguarding against fraudulent activities within the workplace. Strategies for Mitigating Workplace Fraud Risks Strengthening Internal Controls Implementing robust internal controls is crucial in creating a layered defense against potential fraudulent schemes. Regular audits, segregation of duties, and clear policies and procedures can act as deterrents to individuals contemplating engaging in fraudulent activities. Clear communication of expectations and consequences reinforces the organization's commitment to upholding ethical standards. Encouraging Whistleblowing Establishing channels for anonymous reporting empowers employees to speak up when they suspect fraudulent behavior. Encouraging a culture of honesty and integrity, where employees feel safe to report malfeasance without fear of retaliation, can help identify and address fraudulent activities at an early stage. Conducting Regular Training and Awareness Programs Educating employees on the signs of fraud and the importance of ethical conduct is vital in creating a vigilant workforce. Regular training sessions that highlight common fraud schemes, emphasize the importance of data security, and provide guidance on reporting suspicions can bolster the organization's defenses against fraudulent activities. Take Action Today In conclusion, safeguarding against workplace fraud requires a proactive and multi-faceted approach. By understanding the nature of fraud, recognizing its potential impact, and implementing comprehensive strategies to detect and prevent fraudulent activities, organizations can mitigate the risks posed by unscrupulous individuals seeking to exploit vulnerabilities within the workplace. Together, let us shine a light on the hidden threat of workplace fraud and take decisive steps to protect the integrity and success of our businesses. Remember, the fight against fraud begins with each one of us. Stay vigilant, stay informed, and together, we can thwart the schemes of those who seek to compromise the values and principles upon which our organizations stand. Let us rise to the challenge and secure a future where transparency, trust, and accountability reign supreme.

By: Michael Blevins, CFE Fraud is an ever-present risk for businesses of all sizes, but small to medium-sized enterprises (SMEs) are particularly vulnerable due to often limited resources and less robust internal controls. A comprehensive fraud risk assessment conducted by a Certified Fraud Examiner (CFE) can be an invaluable tool in safeguarding your business. In this blog post, we'll explore why a fraud risk assessment is essential and provide recent examples of SMEs that suffered significant losses due to internal fraud. The Importance of a Fraud Risk Assessment 1. Identifying Vulnerabilities:  A fraud risk assessment helps to identify areas within the organization that are susceptible to fraud. This includes examining financial processes, employee behavior, and existing controls to pinpoint potential weaknesses that could be exploited by fraudsters. 2. Enhancing Internal Controls:  By evaluating the current control environment, a CFE can recommend improvements to strengthen internal controls. This might involve implementing segregation of duties, enhancing approval processes, and ensuring regular reconciliations to detect and prevent fraudulent activities. 3. Reducing Financial Losses:  Preventing fraud before it occurs can save a company significant financial losses. Even small fraud incidents can add up, impacting profitability and potentially jeopardizing the business’s financial stability. A CFE can help design proactive measures to mitigate these risks. 4. Protecting Reputation:  Fraud can severely damage a company’s reputation, leading to loss of customer trust and business opportunities. Conducting a fraud risk assessment demonstrates to stakeholders that the company is committed to maintaining ethical standards and safeguarding its resources. 5. Legal and Regulatory Compliance:  Many industries have specific legal and regulatory requirements regarding fraud prevention. A CFE can ensure that your company complies with these regulations, helping to avoid legal penalties and sanctions. Recent Examples of Fraud in SMEs 1. Case Study: XYZ Electronics In 2022, XYZ Electronics, a mid-sized retail company, discovered that an employee had been embezzling funds over a two-year period. The employee, who worked in the accounting department, manipulated financial records and created fake vendor invoices, diverting over $250,000 into personal accounts. The fraud was only discovered during an internal audit when discrepancies in the accounts payable records were found. This incident highlights the need for robust internal controls and regular financial audits. 2. Case Study: Green Thumb Landscaping Green Thumb Landscaping, a small business providing landscaping services, fell victim to payroll fraud in early 2023. An office manager created ghost employees and issued paychecks to these fictitious individuals, ultimately stealing more than $100,000. The fraud went undetected for several months due to a lack of segregation of duties and insufficient oversight of payroll processes. This case illustrates how SMEs with limited staff can be particularly susceptible to such schemes. How a CFE Can Help 1. Conducting a Comprehensive Fraud Risk Assessment:  A CFE will thoroughly evaluate all aspects of your business operations to identify potential fraud risks. This includes analyzing financial data, interviewing employees, and reviewing internal controls to develop a clear picture of the company's vulnerability to fraud. 2. Implementing Stronger Internal Controls:  Based on the findings from the risk assessment, a CFE will recommend and help implement more effective internal controls. This might include establishing clear policies and procedures, improving employee training, and implementing technologies that enhance security and monitoring. 3. Ongoing Monitoring and Support:  Fraud prevention is not a one-time effort. A CFE can provide ongoing support to ensure that controls remain effective and are updated as necessary. This continuous monitoring helps to promptly identify and address new risks as they emerge. 4. Investigating Suspicious Activities:  If fraud is suspected, a CFE can conduct a detailed investigation to uncover the truth. Using forensic accounting techniques, they can trace transactions, gather evidence, and work with law enforcement if needed to hold perpetrators accountable. 5. Training and Education:  A crucial aspect of fraud prevention is ensuring that employees are aware of the risks and know how to recognize and report suspicious activities. CFEs can provide training sessions and resources to help build a culture of integrity within the organization. Conclusion Fraud can have devastating effects on any business, but SMEs are particularly at risk due to often limited resources and less rigorous internal controls. Conducting a fraud risk assessment with a Certified Fraud Examiner can identify vulnerabilities, enhance internal controls, and ultimately protect the company from significant financial losses and reputational damage. The recent examples of XYZ Electronics and Green Thumb Landscaping underscore the critical need for such assessments. By taking proactive steps to mitigate fraud risks, companies can safeguard their assets, maintain customer trust, and ensure long-term success. Michael Blevins is a Certified Fraud Examiner and owner of Michael Blevins and Associates, a consulting firm specializing in occupational fraud risk management.  Email: Michael@BlevinsAssociates.com or phone 760-206-3717.  Website: www.BlevinsAssociates.com

In a case that has shocked the local business community, a Central Ohio man was sentenced to 60 months in prison for embezzling over $26 million from his Columbus employer. Yi He, a resident of Powell, received his sentence today in U.S. District Court. Alongside his prison term, Yi will be required to pay restitution to both his former employer and the IRS. Additionally, he will forfeit a Tesla vehicle as part of the sentencing terms. The Crime Yi He was a long-standing and trusted employee of a furniture company that supplies major retailers such as Wayfair, Overstock, Kohls, Walmart, and Ashley. Entrusted with payroll and payroll tax-related duties, Yi exploited his position to siphon funds from the company's bank accounts into his personal and investment accounts. From 2018 to 2022, Yi executed a sophisticated scheme to embezzle money by submitting falsified and fraudulent bank and financial statements to company leadership, ensuring his actions went undetected. In one instance, in February 2022, Yi wired himself $100,000 and subsequently altered the bank statement to erase any trace of the transaction. Extent of the Embezzlement The total amount stolen from the company by Yi He reached an astounding $26.5 million. However, Yi's fraudulent activities did not stop there. He also had a hand in overseeing an employee incentive LLC, which was designed to reward employees with ten or more years of service by offering additional earnings and retirement supplements. Yi embezzled $635,000 from the LLC’s bank accounts, disguising personal payments as legitimate business expenses. For example, in April 2022, he paid himself $200,000, falsely categorizing the transfer as "Rent." Tax Evasion Yi’s fraudulent activities extended to his tax filings. He failed to accurately report his embezzled income to the IRS from 2018 through 2021, resulting in a tax loss of approximately $6.8 million. Legal Proceedings In August 2023, Yi pleaded guilty to wire fraud and filing a false tax return. His sentencing was announced today by Kenneth L. Parker, United States Attorney for the Southern District of Ohio, and Karen Wingerd, Acting Special Agent in Charge of the Internal Revenue Service Criminal Investigation (IRS-CI). U.S. District Judge Sarah D. Morrison imposed the sentence, and Deputy Criminal Chief Jessica W. Knight is representing the United States in this case. This case highlights the critical importance of oversight and checks and balances within companies, even for long-time and seemingly trustworthy employees. The repercussions for Yi He are severe, as he faces not only a significant prison sentence but also the financial burden of restitution and asset forfeiture. A fraud risk assessment is one way an organization can determine if they have too much dependency on key employees and if there are proper controls in place to avoid situations such as this one. Michael Blevins and Associates is a fraud risk management consulting firm specializing in fraud risk assessments. Visit www.BlevinsAssociates.com today for more.

When faced with a discovery of employee fraud, the initial reaction often echoes, "This is the last person I would have expected this from. They were like family to me." This narrative is a recurring theme in numerous business publications, illustrating cases where long-trusted employees commit embezzlement over extended periods. This problem transcends company sizes, affecting small, medium, and large enterprises, involving employees at various levels, including shareholders and partners. Gender bias is absent, and the perpetrators typically lack a prior criminal record. The malfeasance often begins with small amounts and escalates unchecked, resulting in substantial financial losses, sometimes totaling in the millions. The aftermath requires collecting three dollars in additional fees for every embezzled dollar to recover the losses. Want some examples?  I found the following fraud related headlines from just Southern California in the past few months: Local youth football parents say assistant coach stole thousands from team – Fox5 San Diego 9/23/2023. Official charged with embezzling more than $14 million from OC school district – Orange County Register 10/19/2023. Home Depot employee allegedly embezzled $1.2 million in cash in California – The Hill 10/23/2023. Attorney General Bonta Announces Charges, Arraignments in Over $8 Million Embezzlement and Tax Fraud Case in San Bernardino County – 11/01/2023. Former employee accused of embezzling $173,000 from Temecula printing business – ABC7 Los Angeles 12/23/2023.     It should be noted that we seldom hear about cases like these, because employers oftentimes choose not to pursue them for various reasons – one being they would rather not be in the headlines for this type of ‘event”.      The Pervasive Nature of Fraud Employee fraud persists as a serious issue, exacerbated during economic downturns. Many business owners have a false sense of security, believing their employees are immune to such behavior. Blind trust coupled with a lack of internal controls can lead to serious consequences, potentially allowing fraudulent activities to transpire under one's nose.   Understanding the Roots of Fraud Fraud typically stems from three main factors: need, opportunity, and rationalization. When these elements converge, the likelihood of fraudulent behavior increases. The need for extra money can arise from personal financial struggles, life changes, or external pressures, while weak internal control systems provide the opportunity for errors or intentional fraud. Rationalization often follows a lack of integrity from top management, creating a culture where questionable behavior is tolerated or even justified.   Preventing Fraud Effective prevention involves addressing each of the three contributing factors. While it may be challenging to control employees' needs and rationalizations, opportunity can be significantly reduced through a robust internal control system. Vigilance, coupled with a commitment to fraud prevention, serves as a deterrent for potential wrongdoers. Internal controls comprise three vital components: the control environment, control policies and procedures, and monitoring and adjustment.    Components of Internal Control: Control Environment: Emphasizes the company's commitment to control and quality, including factors like integrity, ethical values, management philosophy, and human resources policies. Control Policies and Procedures: Specific measures put in place to prevent or detect errors, tailored to the company's risk profile, including areas such as cash management, expense reporting, and trust accounts. Monitoring and Adjustment: Regularly assessing the effectiveness of the internal control system, staying updated on potential fraud schemes, and making necessary adjustments to prevent new threats.   Recognizing Warning Signs Certain indicators can signal potential fraud, including irregular bank reconciliations, delayed financial reports, consistent errors in reporting, employees refusing vacation, employees living beyond their means, and a hands-off management style. Proactive attention to these warning signs can aid in the early detection and resolution of fraudulent activities. Fraud remains a prevalent threat to businesses, with small enterprises being particularly vulnerable due to their lean administrative structures and a culture of trust. Combatting this issue requires a proactive approach, including healthy skepticism, awareness of employees' situations, strong internal controls, effective policies and procedures, and regular monitoring and adaptation. While complete elimination of the risk is impossible, implementing these measures can significantly mitigate the potential for fraud, offering business owners a better night's sleep knowing they are actively safeguarding their firms. Article author Michael Blevins is a Certified Fraud Examiner and can be reached at www.BlevinsAssociates.com