financial controls

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What Are You Doing for Fraud Prevention Month?

“Every young man would do well to remember that all successful business stands on the foundation of morality.”

– Henry Ward Beecher

This quote seemed like a good way to address the month of March, which is National Fraud Prevention Month. Last year, I wrote the following post encouraging you to be aware of fraud and to seek it out.

As I’m fond of saying, if you haven’t found anyone at your business committing fraud, you’re just not looking hard enough.

If your controller is required to look at only transactions above $5,000, during the month of March encourage him to look at all transactions over $4,000. Think about it. If someone wanted to steal money and knew that all transactions over $5,000 were routinely reviewed, wouldn’t that person steal money in the amount of, oh, say, $4,999?

If you’re saying, “No way!” you better believe that I have uncovered more than one case of fraud on just this basis.

Here’s something else I would like you to do for the month of March: kick your CFO out. No, not permanently (well, hopefully not permanently). Just ask him to leave for 2 weeks. Perhaps right before taxes are due is not the best plan for some businesses, but perhaps his vacation is coming due just after that. If this is too short notice GOOD! You don’t want him to be aware this is coming. You just want him out for two weeks.

Now you do his job. Sit at his desk. Open his mail. Talk to his secretary or assistant. And don’t let him back in the building for any reason. Just see what comes up – trust me.

If you don’t find anything unusual, wonderful. Be glad you did this and move on. But if you do find something, know that you’re not the only one out there who did. This is one of the number one ways I uncover fraud, and I encourage you to do it annually.

So, over the course of this month, I hope you’ll enjoy some of my many stories of fraud, and when I say enjoy I mean I hope they’ll inspire you to put more strict measures in place at your business to prevent fraud.

Remember, if you haven’t found fraud, you’re not looking hard enough.

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The First Time I Got Shot At

A few years ago I got a call at 2 a.m. and was told by my plant manager in Greensborough that there was a dangerous oil spill at our plant. Hoping to avoid a major catastrophe with the EPA, I jumped into my car and drove to Greensborough. I made it there in record time, hoping to contain the spill by 6 a.m.

As we got ready to enter the plant, two hundred rounds were fired at us from two different uzis.

After speaking with the police later, a member of the railroad crew that our company used came over, pulled his shades down to his nose and looked me in the eyes and said, “If my fellow union railroad members had meant to hurt you, you would be hurt. So, get back in your fancy car and get your ass back to Atlanta.”

So, why did I get shot at – but not killed? Let’s see if you can learn a lesson from my situation and avoid your own problems in the future.

This happened because the CEO of the oil company that I was turning around wasn’t watching its demurrage charges from the railroad. They got their oil off-loaded from the cars but the railroad workers who were supposed to move the cars weren’t moving them, and the charges kept adding up. The oil company had financial controls in place to be notified if certain expenses were growing at an unreasonable rate – and that’s great – but when they got the notices they ignored them for 18 months.

When I go there I started asking questions about hundreds of thousands of dollars of fees; the railroad investigated and found that the three employees who were supposed to be moving these cars out after we emptied them were actually goofing off, playing tennis, fishing and so forth. One was fired and two were suspended.

They retaliated against the oil company by breaking an external oil valve and releasing thousands of gallons of oil, which was heading towards a nearby stream – hello, EPA! – and that brought me there in the middle of the night.

And then the shooting began.

The lesson learned goes back to being proactive and having proper financial controls, but what good are financial controls if you ignore them. Put your policies in place and follow them.

Have you ever experienced extreme employee retaliation?