|
Stop, Thief!
Preventing and Uncovering Fraud in Your Cemetery or Funeral Home, Part 3
(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
Preventing and Exposing Fraud
Go down this list. If you, as funeral home and cemetery owners and managers, answer "no" to a number of the items on this checklist, you have significant fraud exposure in your organization.
• Criminal and credit checks are part of the hiring process. This is an absolute must today. If you are not requiring, as a final condition of employment, that people agree to a criminal and a credit background check, you're making a terrible mistake. I'm sure that Mike Pepperman can help you out with a form that they can sign to allow that kind of check.
• Employees who can get anywhere near your money are bonded. It's not so much the bond that I'm interested in. These bonding companies are in a sense insurance companies, and they have lists, and if you try to get somebody bonded that's on one of their lists, you'll hear about it.
• You enforce your internal control procedures.
• You have established and you enforce a code of conduct. A lot of people don't think about this. You can't have, "Do as I say, not as I do." You can't do that in your organization, because it's going to send a terrible message. If you go in on Friday night to your CFO, your controller or your office manager and say "I need $500 out of petty cash, I'm going to entertain some people this weekend, charge it to expenses," it sends a terrible message: "He does it. Everybody else does it. Why can't I?" If you have the grounds people coming to your home and doing the landscaping for your 40-acre farm and using the cemetery's grass seed, I guarantee you everybody who works for you knows that. And they're going to do the same thing.
• You have active management oversight of critical procedures. You can't just put these procedures in place and stick them up on a shelf, you've actually got to get involved in them, every day.
• Cemetery management and bookkeeping systems are integrated. This isn't as much of a problem anymore because our computer systems in the industry in general have gotten to the point where most of them are integrated. If they're not, it just puts another layer of confusion in the bookkeeping system.
• The company's owner is on site. Absentee owners are a big problem. They have to be very careful about control systems.
Red flags that could signal fraud
This list is by no means complete, but it will give you an indication of what we look for-and what you should be looking for.
• Unusually high cancellation and trade-in volume. This is an indication that there may be a commission fraud going on.
• Unusually high instance of late notices. This is a big red flag for us that somebody is doing the lapping scheme, somebody's messing with your accounts receivable. Late notices, bad debts and those sorts of things usually tend to stay within in narrow range if the people you're doing business with are staying in the same demographic. If it gets outside that range, you should be concerned. We look for that.
• Small down payments. With small down payments you can have a commission scam. You can get somebody writing phony contracts, turning them in with the small down payment and maybe pushing themselves to the next level in your commission structure. As for having commissions larger than the required down payment, I hope there's nobody doing that anymore.
• An excessive number of bookkeeping errors. That's a big red flag for us.
• Low merchandise sales volume. This could be and often is an indicator that somebody has set up a business on the side and is selling their merchandise to your customers.
Some preventive measures
• Use prenumbered sales contracts, coupons and other documents.
• Strictly account for sales contracts, coupons and other documents.
• Strictly account for all service order forms.
These suggestions may seem pretty basic, but there are many operations where the control of contracts is at best casual-haphazard, actually.
What can happen if you are not carefully controlling your contracts, if you're not prenumbering them and you're not controlling the prenumbering, is you're going to get sales written off the books. It will happen-I can assure you it will happen-and you know as well as I do all the hassles that that's going to cause you.
I'll give you a real life example of this. The dishonest sales counselor gets a stack of your sales contracts that have not been prenumbered, makes preneed sales and pockets the initial deposit. But it's not over yet. He gives the customer a very nice supply of what looks like your envelopes, but the return address is a mail drop, which of course is to him. This can go on a long time; it's tough to catch in the short run.
A variation on that scam is run in an area where it's customary for people to pay in cash. I've never seen this myself, but I've read about it. There have been sales counselors who've actually gone to people's houses and collected the money from them every month, and this has gone on for years. These people thought they were paying the cemetery or funeral home, and they've even bought additional merchandise from the guy. But puts the money in his pocket.
How do you stop that? That's a tough one. The best way is to follow up, to attack that "opportunity" side of the fraud triangle.
• Make sure the sales manager and owner follow up on what sales counselors are doing, every day of the week. There are all kinds of relatively cheap time and billing and management sales tools out there that can help you do it electronically if you want, but some personal follow-up sends a message. Periodically when a sales counselor says, "I saw Mr. and Mrs. Jones at 6 p.m. on Thursday night," you pick up the phone and call Mr. and Mrs. Jones and you make sure the counselor knows you called Mr. and Mrs. Jones. This may seem pretty basic, but a lot of people don't do that, and their sales counselors are just out there freelancing, running around, doing whatever they want to do, and that's why we get into all this trouble in this industry.
• Prosecute dishonest employees. This is a pet peeve of mine. As businesspeople, I think we're all reluctant, for good and valid reasons, to avoid a lot of bad publicity. We've heard the horror stories of going to court and having it cost a log of money and then losing. But I would submit to you that in order to rid this industry of these criminals, what we need to do is always prosecute these people. Always, always, always prosecute.
It sends a really strong message to your organization and to the dishonest community in general. If they know that this industry is going to prosecute them when they catch them, they're going to find something else to do.
Otherwise, here's what happens. Somebody is dishonest, gets fired from one operation and then turns up across town, or in the next county or across the state, because you know as well as I do, when somebody calls for a reference, what people say: "Yes, he worked here." It's useless, but we're all scared to death, we don't want to get sued, and I understand that. But if we prosecute these people, it sends a tremendous message.
Preneed operations
• Discourage cash payments. Probably one of the biggest potential areas for theft in this industry is in preneed, because of the cash involved. I realize that in some places, it's just about impossible to do, but common sense tells you if you can eliminate greenbacks, you've eliminated a lot of problems, so try to do it.
I talked to someone recently who told me about a funeral home receptionist who stole payments people came in and made in cash on their preneed contracts. He thought she stole about $25,000 or $30,000. She just took the money and put it in her pocket.
• Confirm arrangements by telephone and in writing. That's just good basic sales follow up, and perhaps you can sell something else when you do it. But this is a way to attack the opportunity side of the fraud triangle by making sure people know you're following up.
• Consider a secret shopper sting. Do you have a sales counselor you're concerned about? Set up a little sting operation; it's easy and it's not expensive. Set up a sales call for them. They go to somebody's house, but the person they talk to is somebody like me. We've set up cameras in the ceiling or a flowerpot and caught people selling their own services, not following the rule of law. You've only got to do it once and it gets all over the organization.
• And again, require credit and background investigations for employees and bond all staff.
Back to Part 2: The Fraud Triangle
The three things always present when there is employee fraud, and clues to watch out for
Back to Part 1: Stop, Thief!
Examples; what it costs; who is ripping us off
Robert Garvey can be reached at bobg@mksh.com or at 1-800-296-6992 or (410) 296-6200. ; (323) 340-4701.
back to top
Copyright ICFA 2004
|
