Insight on Business

June 2013

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insight on Professional By Tom Groe nfeldt Services Proactive protection Experts offer advice about fraud, embezzlement — and what you can do to prevent it T he bad news about fraud in small businesses: The economic downturn has spawned an increase. The good news: Most of it is predictable and preventable. The most common problem is having one person in charge of finances, from handling invoices to writing checks and reconciling bank statements. Michael Balskus, the assistant district attorney in Winnebago County, recalls a couple who had hired a new, very personal bookkeeper for their small business. Distracted by a parent's Alzheimer's disease, they failed to monitor their accounts until $80,000 was stolen. "She was their one and only bookkeeper," he says. Some fraud can be a little easier with credit cards and the Internet, says David Lasee, the district attorney in Brown County. "But I still find it's mostly the same old unsophisticated things – you have one person in a small business who oversees the money and you don't have anyone to do an audit," Lasee says. "Then two years down the road you do an audit and find a substantial amount has been taken." Marty Mathias, an accountant with the Madison office of SVA Certified Public Accountants, says small business fraud usually just involves bookkeepers writing checks to themselves. "They are able to hide it because the owner isn't looking over their shoulder 32 | Insight • J u n e 2 013 to see who they are writing checks to, and they haven't imposed segregation of duties," Mathias says. The most common way fraud is discovered is through anonymous tips, he adds. Embezzlement is usually in even dollar amounts, so look for checks for $1,000 or $2,500 – people rarely steal with checks for $973.25. Gambling debts and drugs are the leading catalysts for embezzling, according to accountants and prosecutors, so the funds stolen are usually gone by the time the crime is discovered. Recovery is rare although sometimes families will step in with restitution to avoid prosecution. In some cases the embezzling is for serious problems, such as a spouse who is ill or a person who loses a job and needs to pay the mortgage. Once a theft is discovered, the responses of employers and prosecutors can vary. "Some decide not to prosecute," says Lasee. "It depends on the relationship. Some might have a person who has been working there for 20 years and they fell on hard times and the employer understands. And some employers also understand they are more likely to recover something if he doesn't prosecute." Prosecutors will take an employer's wishes into account and may decline prosecution, especially if a person has a clean record. Sometimes, however, the victims have little say. Balskus had a case where the nephew of a jewelry store owner distracted the owner's son – his own cousin – while the nephew's accomplice took $60,000 in valuables. The owners wanted to throw the book at the accomplice, but they didn't want to prosecute their nephew. "That's not going to happen," says Balskus. "We prosecuted them both and also the third person they had transferred the jewelry to." w w w. i n s i g h t o n b u s i n e s s . c o m

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