Secrets for preventing internal fraud.
Creative employee scammers can go to work running up credit card charges, taking out loans in your customer’s names and committing other identity theft scams.
Editor’s Note: In the August/September issue of FURNITURE WORLD, Jim Blanco exposed common external fraud schemes such as bogus credit cards, negotiable instruments and counterfeit merchandise receipts. In October/November, he looked at internal embezzlement schemes, bogus invoicing scams, merchandising scams and time card schemes. In this issue, the discussion of external fraud will continue with preventive measures retailers can take to avoid loss.
Background Checks
An important part of building a great business is having ethical employees. The days of believing the statement, "My word/hand-shake is my bond" are behind us. When taking on new employees, you really do need to be as thorough as possible. Check on the background of prospective employees. During interviews, ask a few questions about honesty. Give the interviewee an opportunity to tell you a story about how they were honest in the past. You should also actually call their former employer and references. Be sure to go two employers back if you can. You could also run a credit check on the employee to see whether or not they are in a desperate financial situation. If they are, then they might be ripe for an embezzlement scam.
General Office Procedures
Although safeguarding your accounting procedures will prevent many potential types of fraud against your business, there are other office procedures that business owners and managers should follow to further protect their companies from fraudulent activities. Perhaps you have very honest bookkeepers but there may be a wild card somewhere else in your midst.
A new restaurant owner learned about the importance of securing his office the hard way. The city council had encouraged this restaurant owner to hire local people, and he had complied. After the first month of business, he noticed that many checks were missing from his business checkbook. The owner had left the business checkbook out, and one of the employees had removed several checks from the back of the checkbook so that it would take time for the owner to notice they were missing. The employee then enlisted the help of her partners in crime, filling out and passing these forged checks to local banks, merchants and check cashing stores. Since it took awhile for the owner to notice that checks were missing, he did not at first suspect that anything was wrong. Also, since bank statements with which to reconcile a checkbook ledger are issued only once a month, these forgers had at least a month’s head start. A month’s time can leave a cold trail for investigators to follow.
Secure Your Private Office
Company owners, managers, and accounting staff should take care to secure their offices when leaving to attend a meeting, go to lunch, or go home for the evening. Remove important documents from the top of your desk and counters, and secure them in locking file cabinets. Lock up your desk, your office windows, and your doors as well. Restrict the number of sets of keys to your office, and consider well who should be given sets of keys. Make sure that others in the company that deal with important information and financial instruments are also instructed to do likewise.
Protect Customers’ Personal Information
While we are on this topic, you should also give thought to protecting your customers’ personal information against being looted by your employees. Any checks, credit card receipts, social security numbers and other information used on loan applications can be gleaned by employees if they have easy access to this information. Armed with such information, creative employee scammers can go to work running up credit card charges, taking out loans in your good customer’s names and committing many other identity theft scams and other frauds. If the word ever went out to the public that your customers were being victimized by your own employees, it would be terrible publicity for your business.
Handle Mail With Caution
This prescription had meaning for retailers even before September 11. Don’t put your outgoing mail in a common location where a passersby may remove it, and don’t have your mail delivered to you at a location accessible to everyone in your business. There are at least two things that can happen with your incoming or outgoing mail. When you put mail out after writing accounts-payable checks, renegade employees can intercept these checks, photocopy them (to remember what your signature is supposed to look like), then wash them with chemicals to remove the information that you wrote on the checks. They then fill out the checks with new payees, forge your signature, and deposit them into bogus accounts.
Dishonest employees with access to mailed checks can also obtain your bank branch and personal account information. They then use any number of computer programs to print out new checks, using one of their alias names and your good account number. The personalized information on these checks coincides with the crook’s phony driver’s license, so everything appears legitimate to those accepting these hybrid checks. These scammers are able to pass these checks, which will clear the bank because there is money in these accounts—your business money!
In addition to stealing your outgoing mail, creative scammers also like to intercept incoming mail and look for the juicy stuff. They take those credit offers we are bombarded with, fill them out, and forge your name. They then note an address change so that the new cards go to their mail drop. When the cards arrive, they charge items or take cash advances until they have maxed them out. Sooner or later you will hear from these credit companies, asking you to pay. When you say, "But I don’t have an account with your company," they will not believe you, and you may have to expend much time and energy to vindicate yourself.
The other possibility, however, is that the creditors will be unable to locate you, and after some time, these bad accounts will be reported to the credit bureaus, putting a black mark on your credit report. When you receive those credit offers in the mail, if you aren’t going to use them, be sure to shred the paperwork right away.
There is a simple way to prevent scam artists from tampering with your mail. You should never put your mail in bins or boxes that allow access to others.
Be Careful With Trash
You need to know that once you "put out" your trash, including any and all documents, that garbage now belongs to the public. Your right to privacy does not extend to the dumpster, the curb, or wherever it is that your garbage ends up. A few years ago I was working a case for a famous entertainer who, of course, will remain anonymous. He suspected his bookkeeper of some wrongdoing, and I retained the services of a private investigator to do a "garbage run." A good investigator can snatch up the entire contents of a ninety-gallon trash barrel in about thirty seconds.
You can learn a lot about a person’s personal affairs and business dealings and connections simply by going through his trash. You should consider the nature of your business trash. Do these documents you are throwing away each day contain information about important clients? Do they contain trade secrets, codes, social security numbers, or perhaps your business strategy for the new year? Everyone should go through this exercise: for a five-day period, every time your hand moves to the wastepaper basket, you should stop and think, "Is this something I want my competitor, the media, an enemy, or a scam artist to have?" If it is of a confidential or personal nature, put it in a box to be shredded later. And by all means, if you haven’t bought a good shredder yet, do so now. Make sure that it shreds both vertically and horizontally, as documents shredded vertically only can be restored. This more effective type of shredder is called a "cross-cut" shredder.
Destroy Deposit Slips
When you run out of checks and add new checks in your checkbook, don’t just throw away the old deposit slips. These can legitimately be used as checks by simply writing "This is a Check" on the deposit slip. Deposit slips also reveal your business account number that can be used to make debits against your account. You should shred them, or at least tear them up and properly dispose of them. Also, properly dispose of old checks that you do not intend to use.
Checklist
Fraud-proof Your Accounting and Office Practices.
1. Golden Rule: Do not let the accountant or bookkeeper that handles revenue or opens the mail also handle disbursements.
2.Reconcile your accounts at least monthly.
3. Have your bank mail your returned company checks and your monthly statements to an address inaccessible to your accounting personnel.
•Review them monthly to watch for fraud.
•Compare checks to the company ledger. Make certain that payees on checks match payees shown on the ledger.
•Confirm that the payees and amounts on checks are consistent and believable with your company’s practice.
4. Do not let the returns counter employees be solo performers. Team them up.
5. Balance inventory with revenue as well as with disbursements.
6. Shred or tear up unused credit card offers, old deposit slips and old unused checks as well as documents containing proprietary or sensitive information and all customer’s information.
7. Use a mechanical time card machine placed in a busy but controlled location.
8. Secure your office when you go out to lunch, a meeting or leave for the day.
9. Do not put your mail in a common bin where passersby may have access to it.
10. "Trust, but verify" everything.
NEXT MONTH
This series will continue with information about fraud-proofing your documents. Learn to safeguard loans, leases and important contracts and agreements. We will also talk about how to "fraud-proof" your signature.
A former Federal and State Government Forensic Document Examiner, Jim Blanco is owner of Blanco Forensic Documents and Fraud Prevention Services, located in Rocklin California. He is a speaker and trainer in Fraud Prevention matters and author of “Business Fraud; Know It & Prevent It.” You may contact Jim care of FURNITURE WORLD at
jblanco@furninfo.com.