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Stop, Thief!
Preventing and Uncovering Fraud in Your Cemetery or Funeral Home
(Editor's note: This presentation was part of the ICFA's Annual Convention & Exposition in Nashville, Tennessee, March 10-13, 2004.)
by Robert A. Garvey Jr., CPA, CrFa, a principal in the firm of McLean, Koehler, Sparks & Hammond, www.mkshforensic.com, in Frederick, Maryland, who leads the firm's financial investigations practice. MKSH specializes in accounting and tax and business consulting, serving approximately 250 cemetery and funeral service clients
Employees have become incredibly adept at "hacking" or breaking into your computer system. They can easily get into your payroll records, your general ledger, your revenue records, your accounts receivable records and just about anything else.
The day when the owner and perhaps his or her most trusted advisor had a key to the file cabinet over in the corner is long gone. Today, everybody in your organization has a key to that file cabinet, and therein lies the problem that we see with the incredible growth in employee embezzlement and fraud.
What it costs
Fraud is incredibly expensive. Employee fraud is costing U.S. businesses billions. Don't think this doesn't have anything to do with your independent operation, or your small funeral home or small cemetery business, because we have very good research that tells us that companies with fewer than 100 employees are the most vulnerable to fraud.
• Companies with fewer than 100 employees lose on average of $127,000. You might think, "That's not too much." But if you make 10 percent profit, it's going to cost you $1.2 million just to make up that loss.
• The average fraud exists for 18 months before it's detected.
• Once it starts, the tendency is for a fraud to keep going. This isn't like the dope who walks into the Piggly Wiggly and holds it up. He doesn't stand there and keep holding it up for eight hours. But once people see that the opportunity for fraud is there and they take it and nobody catches them, there's no reason for them to stop.
• The average computer-related fraud today is netting $1.5 million. That's scary, but think about how fast the transactions are running through the system, and how if you're really good, you can cook the books so easily in a computer system. The average bank robber today gets $2,500. But if you work for the bank and embezzle, you get an average of $25,000.
Gone are the days when people wrote in ink in their books and the auditor came in and stumbled upon the fraud. That's not going to happen today. Your regular auditor is not going to find it; it's going to require a forensic accountant or a trained fraud investigator.
• Tips and luck uncover the most fraud today. My mission in life is to change that. I want your business to have a program to deter fraud so that if you can't keep these people out of your business you'll have a system that will catch them.
Who is ripping us off?
There are some common characteristics.
Position in the organization: Managers or executives steal the most. They are not the ones most often involved, but the steal more because they have the most access to the things people want to steal, which is normally cash. They have the ability to manipulate the accounting system, to circumvent the internal accounting control and to fool the auditors.
Employees commit a lot of fraud but they don't get a lot of money. To be specific, managers or executives are involved 42 percent of the time, with an average theft of $250,000, while employees are involved 64 percent of the time, with an average theft of $70,000.
Gender: Men steal a lot more than women, but that's changing rapidly. Up until recently, not many women had reached the executive level, so they didn't have the opportunity to steal as much as the guys. Fifty-four percent of thefts involve men, who steal an average of $200,000; the 46 percent of thefts involving women average $60,000.
Age: It's not young people who do this, it's people over 35. Seventy-two percent of the embezzlements or frauds where they get more than $100,000 are committed by people who are over 35 years old.
Education: A college degree correlates with high position in the organization, so the statistics are similar to those for position. Thefts involve people with a college degree 43 percent of the time, with an average theft of $243,000. In the 57 percent of cases where the person does not have a college degree, the average theft is $70,000.
The worker committing fraud is typically a male, married, between the ages of 36 and 50, with an undergraduate degree from college and no prior criminal history. Sound like anybody you know?
Part 2: The Fraud Triangle
The three things always present when there is employee fraud, and clues to watch out for
Part 3: Preventing and Exposing Fraud
Putting the right practices and systems in place.
Robert Garvey can be reached at bobg@mksh.com or at 1-800-296-6992 or (410) 296-6200. ; (323) 340-4701.
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Copyright ICFA 2004
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