What’s Your Fraud I.Q.?
By Diane C.O. Gilson, CPA, CIA
Theft doesn’t have to happen with a gun. You can be robbed in broad daylight while you’re out working on a jobsite, as you sit at your desk talking to a vendor, or while you’re on vacation.

When I work with owners of small businesses I often find that, unless they’ve personally experienced prior theft, they have little or no knowledge about:

·         How they may be at risk

·         How simple frauds are easily perpetrated

·         Warning signs of fraud

·         Basic anti-fraud controls

·         How to proceed if they suspect or discover fraud in their company.

Without this information, small business owners (and particularly those in the construction industry) are exceptionally vulnerable to major losses. Fraud is a quiet, insidious form of theft that can rob you, your employees, and your family of your financial security and everything you’ve worked for over the years. It is not uncommon for a major fraud to cause a company to fail. And the criminal seldom makes restitution or goes to jail.

It’s a darn shame—and it needn’t happen to you. I’ve developed the following quiz to get you thinking about your areas of risk. Answers are at the end of the article.

1.      Most frauds are committed by: (choose one)

     a.     Smooth-talking, deceptive con artists.

2. Long-term, trusted management-level employees.
3. Sharp, young employees who are new to the job.
4. Front-line or field employees with access to assets. 

2.      Which of the following scenarios might encourage the bookkeeper for a small company to “temporarily borrow” some funds from the company? (choose all that apply)

1. The job duties include:
   §          Posting deposits and checks to the accounting records
   §          Creating checks for the owner to approve and sign
   §          Mailing checks after the owner signs them, and
   §          Promptly reconciling the checking account at the end of the month after you receive the bank statement.
2. The boss doesn’t understand the accounting reports and seldom reviews the financial statements.
3. The company owner has a clearly posted “immediate dismissal and report to the authorities” policy for theft within the company.
4. As a part-timer, the bookkeeper is paid at a very modest hourly amount, doesn’t qualify for benefits, and has some high expenses and several large credit card balances.  

3.      True or False: The bank will only clear checks that show the name(s) of the authorized signers. 
 

4.      True or False: The bank checks authorized signatures on checks exceeding $10,000.

5.      Your blank checks are stored in a drawer in your bookkeeper’s desk. Without your knowledge, several checks are removed from the bottom of the box and made payable to “Pam Wilson.” Your name is forged and the checks are cashed. They clear for a total of $14,500. Your actual loss is: (choose one)

1. $0, because the bank is responsible for any forged checks.
2. $0, because you discovered the forgery two months later while performing your bank reconciliation, and promptly reported it to the bank.
3. $0, because your employee bonding insurance will cover the loss.
4. $14,500, because you were negligent. The checks were not properly secured, you did not report the theft to the bank within 30 days of receiving your statement, and your insurance deductible is $50,000.

Answers

1.      b. Why? Because they are in a position to do so, and the work of trusted employees is seldom reviewed or questioned.

2.      a. The bookkeeper controls all accounting activities, so there is minimal opportunity to spot fraudulent transactions.
b. If owners don’t understand or review work, it’s like announcing that they are putting a large sum of money in a drawer but will never check to see that it’s all there.
c. Underpaid employees can develop a “they owe it to me” attitude.

3.      False. Although a sharp teller might catch a bad signature at the teller window, most checks are processed by the thousands in batch mode and signatures aren’t checked.

4.      False. See number 3. Banks may check signatures on a small percentage of checks written for large amounts (e.g., more than $5,000 to $25,000, depending on the bank), but you should always assume that the authorized signature “control” is nearly non-existent.

5.      d. Self-explanatory answer. Banks can require you to notify them of discrepancies within 14 to 30 days. You’ll probably want to check your bank to see how much notification time you are allowed, and then be sure to reconcile within that time frame.

Diane C.O. Gilson, CPA, CIA, is a Certified QuickBooks ProAdvisor and MasterBuilder ProAdvisor, author, trainer, and construction accounting coach, as well as a frequent speaker at The International Builders’ Show and The Remodelers’ Show. Her firm, Info Plus Accounting PC/CPA, offers bookkeeping and support services to help construction companies do more accurate and timely job costing and run better management reports. Contact Diane at 734-544-7620 or Help@InfoPlusAcct.com.

Check out Accounting with QuickBooks Pro® for Home Builders and Remodelers. From writing payroll checks to generating up-to-date income statements, this book will help you get the maximum benefit from your accounting system. It includes a CD-ROM with a trial version of QuickBooks Pro®. The price is $22.50 for NAHB members and $25 for non-members. Call 800-223-2665 or visit www.builderbooks.com to order it online.

Builders May Be Entitled to Refunds From Utilities

Builders who have paid contributions in aid of construction (CIAC) to gas or electric companies may be entitled to get some of their money back as a result of benefits to utilities contained in the Bush Administration’s tax bill. These changes do not apply to water or sewer services.

Also, builders may pay utilities a smaller amount for CIAC through the end of next year. Because this spring’s tax cut accelerated the depreciation schedules for utilities, reducing their taxes, builders may not have to pay as much to cover the utility’s income taxes due to CIAC.

The acceleration provision is retroactive to Sept. 11, 2001. Builders who have paid CIAC since that date may be entitled to a partial refund from the utility, but not from the Internal Revenue Service.

Several factors determine whether or not a builder is entitled to a refund from a local utility; the most important is the builder’s contract with the company. Builders are advised to check with their tax professionals to see if the refund is worth pursuing.

For further information, e-mail Andrew Holliday at NAHB or call him at 800-368-5242 x8488. [return to top]

Do Your Youngest Clients Love Bob?

It’s good business to protect all of your clients—especially the pint-sized ones—from mishaps at home.

Close to 100,000 Blueprints for Home Safety activity books featuring Bob the Builder(tm) were distributed to home builders associations, Women's Councils, and members in just under three weeks. The books were a hit for nationwide community outreach programs; members donated them to local elementary schools, handed them out to children at parades of homes, and used the books to conduct special home and fire safety events.

The first 100,000 books flew off the shelves fast, but now HIT Entertainment, the owner of Bob the Builder, has donated an additional 170,000 activity books to NAHB, which is again distributing them only for the cost of shipping and handling. Click here for an order form. For more information, e-mail Kym Kilbourne at NAHB or call her at 800-368-5242, x8447. [return to top]

Builder Bright Ideas

To stay in touch with relocating home buyers, take Polaroid or digital pictures at various stages of construction and send them along with a personal note. For example, “Joe, I thought you’d like to see how much progress we made this week. We’ll be ready for your tile selections by next Tuesday.”

When meeting with clients on the jobsite, always arrive 10 to 15 minutes early. Here’s why:

·         It allows you to spot problems and come up with solutions before the client sees it.

·         You can discuss things with the trade contractor out of the client’s presence.

·         It looks great to the clients; they’ll get the sense you’re always on the job.

You’ll find hundreds of terrific tips on accounting, personnel, customer service, sales and marketing, management, trades, production, and design in Management Ideas That Work and More! Management Ideas That Work from NAHB’s Business Management Department. Each book costs $25 for NAHB members and $31.25 for non-members. Both are available from BuilderBooks; call 800-223-2665, or visit www.builderbooks.com to order online. [return to top]

Don’t Miss the International Builders’ Show

If you haven’t made your reservations yet for the International Builders’ Show, you need to get on the bus—or the plane, that is. After December 17, 2003, you must register onsite.

Beat the long lines by registering now for the Full Registration Package and gaining access to more than 200 educational sessions at the 2004 International Builders' Show. And, if you are an NAHB member attending the Show for the first time, your Full Registration Package is ONLY $100!  Click here to register online.

A comprehensive listing of all 2004 IBS educational sessions is now available online! Click here to find out exactly what you and your business need. The educational seminar listing is searchable by seminar title or description, track, or date.

Former President George H.W. Bush will kick off the Show as the keynote speaker on January 19 at the Orleans Hotel Arena at the Opening Ceremonies—sponsored by Kohler Click here for more information on special events. [return to top]

Member Advantage: Save up to $500 on Mobile Offices With Williams Scotsman

Williams Scotsman offers a full line of temporary-space products and accessories, including sales office and centers, construction trailers, mobile offices, storage products, and floor plans and specifications. 

With 80 locations in North America and more than 50 years of experience, the company has a money-saving plan specifically designed for NAHB members that offers one month's free rent. When you sign up, your seventh month is FREE—for a maximum value of $500. 

For more information, call 800-782-1500 today. Identify yourself as a NAHB member.

To order online and for details on more than a dozen other money-saving Member Advantage discount programs, click here or go to http://memberadvantage.nahb.org.