Businesses can guard against fraud

Matt Whetstone | Cadillac News Michael Novik of Dennis, Gartland and Niergarth in Traverse City discusses embezzlement Friday. Novik and Steve Emerson also discussed fraud during the Lecture Luncheon Series presented by Baker College and the Cadillac Area Chamber of Commerce.

CADILLAC — It can come from a lunch lady or an executive or a complete stranger.

Whatever direction fraud and embezzlement comes from, the crimes bilk businesses out of billions of dollars each year — and those are just the figures that are reported.

However, businesses have options. Steve Emerson of Northwestern Bank and Mike Novik of Dennis, Gartland and Niergarth laid out what businesses can do Friday at the Lecture Luncheon Series, presented by the Cadillac Area Chamber of Commerce and Baker College.

At a high school in northern Michigan, Novik talked about how a lunch lady embezzled $100,000 over a several year period by not ringing up sales. In her case, she also was in charge of taking deposits to the bank.

When she left the school, she would pocket the difference, from $40 to $80 each time.

“Trust is not a very strong internal control,” Novik said. “I like to say it can be anyone from the executive director to the lunch lady.”

Three basic things generally lead to embezzlement: need or greed, opportunity and rationalization.

By conducting credit and background checks, a business can determine if employees are handling their money poorly, or if there’s a gambling problem or legal troubles.

That can help prevent the need-or-greed angle.

Internal controls such as segregating the duties of people in charge of money can lower the opportunity area.

Externally, check fraud is the most common, equating to billions of dollars in losses each year.

“Anything you can due to reduce using checks, the risk of fraud is reduced on your accounts,” Emerson said. “All they need is your bank account information and a laser printer and they’re in your checking account.”

Check fraud and embezzlement are the top two problems for the nation’s top 1,000 businesses.

The most common forms of check fraud are forged signatures or endorsements and counterfeit checks. Some counterfeiters even utilize brake fluid to create “disappearing ink,” Emerson said.

To combat check fraud, Emerson said businesses have several options: review accounts each month, have bank statements sent to an alternate address, control the number of authorized signers, enforce mandatory vacations as it might uncover fraud and centralizing the issuance of checks.

More and more, businesses are turning to “positive pay,” where a statement of checks for the day is sent to the bank. Emerson said it’s becoming the “cornerstone” of check fraud prevention.

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Top 10 fraud Prevention tools

1. Background checks

2. Internal controls (segregating duties)

3. Inspect what you expect (random inspections, instincts)

4. Get a control checkup (go beyond an audit)

5. Watch for ‘red flags’ (Does confidential work go home with someone?)

6. Tone at the top (set a good example, zero tolerance on breach of trust)

7. Check the checkers (very important in small business)

8. Cash is king (Owner opens all bank statements; small office? Consider outside help)

9. Just ask (Anonymous tip process; 40 percent of fraud detected through a tip

10. Authority levels (Everything approved; written and formal process)

mwhetstone@cadillacnews.com | 775-NEWS (6397)