Becoming a fraud fighter

By Joshua Wiesenfeld, CPA

The coronavirus pandemic has created motivation and new opportunities for bad actors to commit fraud. Using the following practices, CPAs can help their employers and clients minimize fraud.

Get organized. Chaos breeds fraud, said Larry Weiner, CPA, managing partner at Dealer Forensics, a firm that specializes in investigating financial irregularities in the automotive industry. When books are disorganized, Weiner explained, it is easy for employees to skim cash or steal parts from the warehouse unnoticed. According to Weiner, CPAs can help their clients keep organized by reviewing their records periodically. It is far more difficult to steal from a business that maintains orderly books.

Establish strong internal controls. A strong set of internal controls is the first line of defense against fraud. Background checks should be performed on any prospective new hires to confirm a history of trustworthiness. "I can't tell you how many of my clients have terminated an employee for stealing, only to discover they've been hired by a similar organization," Weiner said. CPAs can offer to provide the oft-overlooked bank reconciliation control for their clients. By identifying discrepancies between accounting and bank records, management can detect possible errors or fraudulent activity. Small businesses frequently lack the personnel for the segregation of duties required to perform a proper internal control procedure for the bank reconciliation. Bank reconciliation testing is a service that could be outsourced to a CPA.

Review your receivables. Customers are more likely to try to cut corners when money is tight. It is therefore a good idea for businesses to closely examine their accounts receivable. Brian Cohen, CPA, a tax specialist with Zeifmans LLP, recommends that business owners analyze their aging schedules. "You want to make sure your customers are paying you on time," Cohen said. "If the bill is overdue and your customer has not provided you with a satisfactory explanation, it might be a sign that they are trying to bilk you." Cohen also suggests that CPAs test subsequent events. According to Cohen, subsequent events testing is a valuable tool for minimizing bad debts. It is easy to lose track of receivables after the books are closed but before financial statements are prepared. Analysis of subsequent events may reveal unpaid receivables that might otherwise go uncollected.

Communicate. Communication tends to suffer in times of uncertainty. When anxieties are heightened, the understandable tendency is to focus inward and concentrate on shoring up weaknesses and streamlining processes. But it is precisely in such times, like the current anxiety-inducing climate engendered by the COVID-19 pandemic, that it is crucial to maintain robust external lines of communication. This also is an opportune time to strengthen connections with the lawyers in your network. Lawyers are great resources for forensic and legal accounting work. Their clients will likely turn to them to procure an accounting expert to assist with a fraud investigation, bankruptcy matter, or business dispute.

Editor's note: This article is condensed from "Becoming a Fraud Fighter," JofA, July 9, 2020.

 By Joshua Wiesenfeld, CPA, a financial investigator at Labaton Sucharow LLP. To comment on this article or to suggest an idea for another article, contact Drew Adamek, a JofA senior editor, at Andrew.Adamek@aicpa-cima.com.

SPONSORED REPORT

Get your clients ready for tax season

These year-end tax planning strategies address recent tax law changes enacted to help taxpayers deal with the pandemic, such as tax credits for sick leave and family leave and new rules for retirement plan distributions, as well as techniques for putting your clients in the best possible tax position.

RESOURCES

Keeping you informed and prepared amid the coronavirus crisis

We’re gathering the latest news stories along with relevant columns, tips, podcasts, and videos on this page, along with curated items from our archives to help with uncertainty and disruption.