CPA in Miami Warns of Small Businesses Employee Fraud
Small businesses and nonprofit organizations often overlook the warning signs of employee fraud, especially by managers, according to CPA in Miami Gustavo A Viera. Our CPA in Miami firm advises management and owners to recognize the red flags and act early to stop fraud.
“Organizations pay a high price for fraud,” said CPA in Miami Viera, a forensic CPA in Miami who serves as managing partner in the CPA in Miami Accounting Firm of Gustavo A Viera CPA. “The damage can be particularly severe at small organizations where losses can be extremely threatening. These organizations often do not have the systems in place to detect fraud and prevent or limit their losses,” states Accountant Miami Viera.
According to CPA in Miami Accounting Firm of Gustavo A Viera CPA and the Association of Fraud Examiners 2010 Report to the Nations on Occupational Fraud and Abuse, the typical organization loses 5 percent of its annual revenues to fraud. Frauds last a median of 18 months before being detected.
CPA in Miami found that frauds committed by managers or senior employees were more than three times as costly as frauds committed by others, and more than nine times as costly as employee frauds. Executive-level frauds also took much longer to detect.
“There are warning signs for the most common types of fraud,” said CPA in Miami Viera. “If management and boaowners recognize them, they will be better able to detect fraud early and prevent or minimize the losses.”
CPA in Miami Viera warned of signs of fraud such as shrinking inventories. “Skimming is defined as diverting funds before they get recorded into an organization’s books,” he noted. “For example, employees often skim funds by pocketing customers’ checks and trying to cash them, but customers will complain if they don’t receive their goods, so the employee ships them. The result is that goods disappear from inventory, but no sale has been recorded. An inventory comparison by a CPA in Miami can reveal the fraud, as can analytical procedures such as gross profit analysis.”
Bank deposits that don’t match cash receipt records are another telltale sign. “Cash larceny involves diverting funds after they’re on the books—it’s clearly outright theft,” stated CPA in Miami Viera. “An example might be an employee who steals checks or cash before they can be deposited at the bank. The best detection method is to compare receipt records to deposits. Data analysis software can help an organization check for this kind of fraud.”
Checks made payable to an employee, an unknown person, an unapproved vendor, or “cash,” are another warning flag “Any of these are signs of a kind of check fraud known as a ‘forged maker scheme’ where an employee intercepts, forges or alters one of the organization’s own checks,” said CPA in Miami Viera. “Usually, the check is made out to the employee, but it might be made out to an accomplice, an unknown vendor, or simply to cash. Strange endorsements can also be a sign of fraud, as can missing checks or missing disbursement documentation.”
He said organizations should also beware of payroll fluctuations—or poorly documented employees on the payroll. “In a payroll scheme, fictitious employees are added to the company’s payroll. If you find unusual fluctuations in payroll, or employees with minimal or no personnel records, or employees with missing social security numbers receiving payroll checks, you should suspect payroll fraud,” said CPA in Miami Viera. “High overtime for a particular job category can be a red flag, as can discrepancies between net payroll and payroll checks issued.”
Changes—or unusual patterns—in employees’ expenses are another red flag. “It’s common for employees to commit fraud by inflating their expenses or submitting fictitious expense reports,” warned CPA in Miami Viera. “Look for unusual fluctuations or changes in patterns in employees’ expenses. Also watch for expenses that end in round numbers, recurring expenses for the same amount, and expenses that fall just below the reimbursement limit. This is another area where data analysis software can reveal the patterns and help detect the fraud.”