October 12, 2008

You Should Be Afraid of Fraud

By Paul Bieber

Fraud Happens. Never in your business. Always in someone else’s. You watch things too closely. You know what is going on. And, you trust your people. They would never steal from you. And by the way, be sure to leave your list for Santa; Christmas is only 72 days away.

You get a call to give a quote and it looks like a home-run. All you have to do is send in a small deposit to get the plans. Just give your AMEX number and the plans will be overnighted. You think anyone would know this is a rip-off, but thousands of contractors, in many fields, fell for this one last year. IF IT SOUNDS LIKE IT IS TOO GOOD TO BE TRUE–it is. No one picks you out of the yellow pages to give you a guaranteed hit. Never give your credit card number to someone you don’t know. If you are interested, call them back at their office. Google the name. Are they in the Yellow Pages? Will they give references? If they want the cash or your card number now, run in the other direction. Any legit business relationship can stand a day’s wait while you check it out. If they won’t wait…don’t do the deal. If someone calls your company asking for bank or credit info, instruct your staff that this type of call goes directly to senior management. Teach your crew that all company information is confidential and cannot be given out except by management.

Most fraud is done by employees. According to one survey in the late 90’s, 58% of fraud was committed by ordinary workers, 30% by managers, and 12% by executives. Look at all aspects of your organization. Also, men were responsible for four times as many frauds as women, but women had a higher average take than men.

Checking your credit for identity theft is advertised on TV every day. Did you ever check your company’s history with the credit bureaus? A company is easier to scam than an individual! At least twice a year you should get your profile. Always check your credit card bills, demand receipts from each employee who has a card, and match them to your monthly statements.

Employees who have committed fraud have been interviewed. One of the most common reasons given is: They saw the boss do it, so it was OK for them to do it. If you handle cash in your company, put every cent on the books, and let your people know you do this. You set the tone of the ethics of your business. No one else. If employees see you pocket cash, they will too. And if you catch someone doing it, they can easily blackmail you on your own creative accounting.

Are you checking the references and backgrounds on potential employees? Most of you are not. I’ve seen too many companies that hire anyone who comes in the door, and wait a couple of weeks to see if they can cut it in their company. If some one is a part-timer, or a temp employee, they can do as much damage as a full-time employee–in fraud as well as worker’s comp problems. Look for gaps in employment of longer than a month. Run their driver’s license through your insurance agent to check for suspensions. Call their previous employers and get valid references. I do not accept the excuse that it will delay the hiring a couple of days, and you might loose a good employee who wants to work right away. You are paying dues to the short-run devil at the expense of the long-term health of your company.

Another common scam is the office supply scam, where a company calls you, saying they are your supplier of copier paper, and it is time for a re-order. You might just sat yes to a reorder too easily. Many do as this is one of the most profitable scammers games there is. Confirm that this is indeed your vendor, ask for their address, for your account number from them, the brand of paper they sell. If you just give them a verbal yes, you will get a delivery at a higher price than you expected, and you will receive lesser quality than you paid for. The tip-off is the delivery is COD. Never, ever, give COD for basic products that you buy in your community, to a company you don’t know. If they want to visit you, and have you fill out a company credit application that is OK; they will never show up and you will be ahead of the game.

If it walks like a duck, quacks like a duck, flies like a duck, it is not a diamond in the rough waiting just for you. Don’t be naive in business. The people who create and implement these scams are pros at it. Be careful and you will avoid their duck droppings!

Next week we will discuss fraud in worker’s compensation–the biggest single extra cost to small and medium sized businesses in the US.