Protect Your Business From Staff Fraud (scroll down for video and podcast)
Don’t think that it couldn’t happen to you. Staff fraud happens to good people and it ruins businesses, relationships, marriages, jobs, and causes a lot of hurt and heart ache. Learn the simple strategies to prevent it. Prevention is key here.
Read to transcript below, or watch the video, or listen to the podcast. Just make sure you don’t miss this!
Olivia:
Hi everyone. Hi, I’m Olivia, this is Jeff.
Jeff:
Hi, Olivia.
Olivia:
Welcome! So, Jeff Gordon is a financial controller consultant. He’s the missing link between account staff and the tax accountant. He’s a valuable resource for business owners who don’t require a full time finance person. And, you started your business three years ago. He’s a qualified account and certified Xero advisor. And, he’s had 25 years experience in helping small to medium enterprise business fight off financial challenges and pain points.
Welcome.
Jeff:
Thank you, Olivia. It’s a pleasure to be here today, and I hope I can pass on some great knowledge and tips for the many business owners watching. And, these are very valuable tips. We’ll be talking about a very serious issue that a lot of people don’t take seriously.
Or if you listen on your via your iPhone Apple App:
Olivia:
So, yes, actually, this is going to be really interesting. I’m really hoping to be able to get the message out there, because I’ve read the eBook that you sent me. So, I would recommend getting on Jeff’s website. We’ll discuss that later. And, it’s really important information.
It’s absolutely important to tune in and to get this, and to apply it in your business.
First, when we started talking, you talked about wanting to talk about the topic of fraud. And, that could be … There’s lots of different types of fraud. They can be bounced cheques, or using stolen credit cards, or all sorts of frauds. But, you were particularly talking about staff fraud that happens within a business, isn’t it? That’s what we’re focusing on?
Jeff:
Yeah. I deal with various small businesses, and one of the service offered is a free financial diagnostic review of their business, ’cause I’m very analytical and forensically minded person. So, while I’m checking out their accounts and [how profit ] is going, I’ll also have a look at what things they’ve got in place to prevent fraud.
Some of the most simple things are not done by business owners, and the consequences can be dramatic. For example, I heard a story just recently, two directors, two brother-in-laws, they didn’t have a system where two people had to approve to transfer money. And, one of the brother-in-laws had siphoned $3-million out of the business over the past five years, and they closed the business. And, if they would have read my eBook of 12 pages, and implemented a very simple process, that would’ve been avoided, and that’s what happens.
Human nature is-
Olivia:
Even family? That’s-
Jeff: Whether it’s family-
Olivia:
That would’ve done so much more than hurt the business. I mean, that’s big enough in itself, but that’s ripped the family (apart).
Jeff:
It happens more in family, because just assume because it’s family, you can trust everyone. But, I used to work with a guy, called Don, and he said, “Jeff, you know what? I can only trust my mum and my back pocket.” Which, is funny, and very sad for this situation. But, don’t assume, in life … You need to put these things in place, irrespective whether it’s family, or other people, just to protect the business. You’re talking about a business. Families, assets, staff losing their jobs, and that’s very simple, and I don’t think it’ll offend anybody.
Jeff:
Clever businesses document it, and train the staff to watch out for fraud. And, they’re the people who can sleep well at night.
Olivia:
Hmm. So, what kind of fallout have you seen from-
Jeff:
Oh, look … I’ve actually had two projects where I was called in where the financial controller got sacked due to fraud, and those businesses were lucky, because of the amount of the money stolen wasn’t enough to affect the business. So, I went in there and helped run the finance section while I employed a new person. But, in most cases, the owners just lost a fair bit of money. One was a quarter of a million dollars, and the other one, we don’t know, ’cause it was cash sales.
Olivia:
That’s interesting. I think some people might think of it as not serious crime. Or, what are they…a victimless crime. And, by no means, it’s because we’re burying our heads in the sand about the repercussions that happens when you take money from a business, that stops it from being able to sustain itself, and that has real, human costs to it. It’s not just numbers.
Jeff:
And, what’s real interesting, with those two cases, the companies decided not to prosecute, because there’s legal implications. The company doesn’t want to get out in the public, the people who’ve been sacked might have ammunition to fire back at the company. A lot of these people just get paid out their annual leave, and terminated. That’s sad.
Olivia:
There’s no recourse.
Jeff:
No, it’s very sad that they don’t get prosecuted. And, most of them get another job and-
Olivia:
No one knows.
Jeff:
No one knows.
Olivia:
Wow. That’s shocking, isn’t it?
Jeff:
Yep.
Olivia:
You’d think they’d have no recourse after committing fraud … That’s pretty … That’s ridiculous. All right. You have a passion for fraud. Can you give us a background on how you came to become so passionate about it?
Jeff:
I’m a very analytical person. That’s why I got into accounting, ’cause I love numbers, and analyzing and trying to work out how to improve things, and find cost savings. And, you know, I watch legal cases, I love psychology, so the fraud thing is not my only passion, but I just enjoy it because I just like to see things done properly, and processes put in place. And, I like things …
I don’t like people to get away with fraud. I hate it. I really hate it. It’s not fair that this woman stole $250,000, and used that money to invest in an investment property. That’s disgraceful.
Olivia:
Yes, she made some made someone else poorer to make herself richer
Jeff:
And, she’s got another job as a financial controller earning six-figures, and she’s laughing, and nothing’s happened to her. I don’t want this to happen to any business.
Olivia:
No. Well, I hope we get that message out.
Olivia:
All right. What factors have you seen that contribute to this happening?
Jeff:
Okay. Generally, a lot of businesses, forgetting about fraud, don’t have any documentation, systems or procedures. Small businesses. And, that’s very important to start with. And, in terms of fraud they don’t have any systems or procedures, ’cause they just assume, “It’ll never happen to us.”
Jeff:
I think, about, 8% of businesses it happens to. So, about one in 12. I’ve read a lot of stories about it, and that’s how I wrote my eBook, and I’ve seen it happen in real life.
Jeff:
It’s amazing, one story was … The staff have to keep their eyes open, and they’ve got to be trained to watch out for things, unusual habits of people. For example, this lady, she parked a new, red Mercedes in the carpark next to the MD. Right?
Olivia:
But, how would you have that conversation? You’re a small business-
Jeff:
Yeah, okay.
Olivia:
… really say, “Watch out for … How are you telling people to watch for fraud with team members?
Jeff:
Okay. All right. Well, let’s assume that she’s got a rich husband. But, anyway, his business started to go down the drain, and he called in an auditor. The auditor did an audit, and said, “I hate to tell you, but your accountant is stealing money from you, and that Mercedes outside, she’s leasing it through your business.” And, ironically, he didn’t believe the auditor. He said, “There’s no way, I know, she’d steal from me. She’s a long time friend of mine.”
Jeff:
That comes down to the old case of don’t assume. And, he probably wasn’t watching his bank statements. He probably was allowing her to make payments without him approving it. And, that’s what happened.
Olivia:
You should be able to trust someone like that. That’s so tragic, isn’t it?
Olivia:
All right. Well, maybe I should let you go on your ten … ‘Cause you have ten steps, don’t you? So, maybe take us through what we can do.
Jeff:
I hope people read my eBook, because I put a lot of work into this and some great content. The first thing you need to do is understand the risks in your business. Every business is different. Services business is different to a products business. You need to understand what are the potential things that can go wrong, and you need to develop a policy, including all your risk assessments. Once you implement the systems and procedures, for example, that two people must approve payments that go out of the business, and a maximum of, let’s say, $20,000 a day, that’s the first thing you should.
Olivia:
Mm-hmm (affirmative).
Jeff:
Then, we come to fraud insurance, which is now becoming more and more affordable, and popular. So, if you got fraud insurance, even if you don’t have great systems, you’re covered. I believe in all insurances, as long as you can afford it.
Jeff:
Educating your staff. That’s really important. Because your staff are your best investigators. If you teach them to look out for unusual things, anyone who’s recently bought a very expensive car, or who’s gone on an overseas trip, or who’s working back ’til 10:00 at night, these are signs that, maybe, you know? Something’s not right. But, some people are switched on, some are not. But, that’s one good way to prevent fraud happening.
Generally, most of the fraud happens within the finance area. So, you’ve got to check out the duties and try and segregate duties, and ensure people take holidays. Because if people take complete control, and don’t take holidays, and the purchasing officer doesn’t get approval on what he purchases, you could be a in bit of trouble there. Make sure you encourage people to take holidays. You might want to get someone to take over from the purchasing officer while he’s away, and get him to check what the guy’s doing.
Olivia:
I guess, yes, so more than one person needs to know how to do hese jobs.
Jeff:
Now, with business, businesses, I think, it’s less than $2-million don’t need to have their business audited. But, I know a lot of businesses, and a great thing, and okay, costs a bit of money … But, get an independent auditor into your business once a year. Don’t tell the staff when it’s gonna happen, because there is a good way to check your accounts, your systems, and they can pick up fraud a lot easier than I can, ’cause that’s their bread and butter.
But, that’s a good thing, to get an auditor in. Okay, it costs a little bit of money, but that is a great way to protect your business.
The next thing is … One really clever thing, because of all online things now, one thing you can do is get the bank statements posted to the managing director or the two directors, because some of them get lazy. They don’t look at their online bank balances, ’cause if a bank balance starts dropping, that’s an obvious sign something’s wrong. Get it posted to their private address. And, they can look at the bank statements, and if $10,000 is being withdrawn every week, you don’t have to be a rocket scientist to work out that something’s not right.
Olivia:
So, go back to old school paper-
Jeff:
Yep.
Olivia:
… as a prompt to, “Hey, have a look at this.”
Jeff:
Yeah.
Olivia:
Otherwise, they’ll just forever put it off.
Jeff:
Well, with all the new cloud-based technology, if you look at your dashboard every day, you can see your bank balance. The diligent business owners do that, every day or second day, you can see your bank balance. That way you can pick it up. And, like I said before, make sure all your staff take holidays. Don’t let someone not take holidays for quite a while, ’cause that’s the way they control and manipulate things.
Because, if they do take holidays, there’s a chance someone will move into that role, and pick up something that doesn’t look right.
Olivia:
“Look, what’s going on here? This is weird.” Kind of, you know?
Jeff:
Yeah. Yeah.
Jeff:
There are the top, main tips that I’d recommend. The other one, if you’ve got stock, if you got a product business, never let your purchasing officer do a stock take. Never. Because, that person can manipulate the figures. Always get one or two of the staff to do the stock take together, and that way you’ll have a truthful account of all your stock.
Olivia:
Okay. I guess, the biggest thing I’m wondering is how you introduce these changes in a smaller team, without saying, “Hey, guys, we’re suspecting somebody of fraud.” I mean, that’s, I guess, it’s-
Jeff:
Yeah, so, as I said, because a lot of business don’t have things documented, and properly systems and procedures in other areas in the business. I think you can introduce it and just say, “Look, we’re documenting all our systems and procedures. We’re reviewing all of them.” And, without making it obvious, just bringing in a few extra things like payments going out of the business. I don’t think anyone would be offended at things like that.
Olivia:
I think it’s just about being professional, though. A lot of things that you mentioned, they’re just simply good professional practice that should be really respected.
Jeff:
Yeah. Look, you need to have things documented, mainly because if a staff person leaves, it’s very easy for them to pick up what their job role is and description. And, if you want to sell your business, you must have everything documented.
It’s very important to have everything document in your business. And, I do know a person who does this as her profession. She does a hard copy, like a Bible, and an online copy with every single system and procedure in your business. So, it’s fantastic to have.
Olivia:
Okay. Actually, on the fraud insurance, to be honest, I need to check that. That wasn’t something I’ve particularly heard of. I need to look into that, that sounds like a fantastic idea, too.
If people want to know … Has anyone there got any questions? I can’t see any other comments popped up. But, I can always comment below later, ’cause this will be saved onto the page, anyway, if anyone is not watching live and watches it later. If anyone wants to know more about what they can do …
Jeff:
Yeah-
Olivia:
What do you recommend?
Jeff:
Well, I’m happy to talk to people if they’ve got any concerns. But, there’s a lot of information on Google, and various websites. And, there’s some great content there, and they simplify it very well.
Olivia:
Like I said before, I’m getting ready for this interview, I said, “Can you send through the eBook?” And, I would definitely recommend people going on to your website. What’s your website, again?
Jeff:
It’s prestigesme.com.au You just put in your details, and I’ll send you. It’s only 12 pages. It’s the best 15 minutes you could ever do if you’re a business owner to prevent your life being stuffed up by one greedy employee.
Olivia:
I’ve read it, and you sign up, from time to time, you sign up for some eBook, and this one is definitely not fluffy or anything. It is actual, real concrete great tips. It’ll be some of the things that you’ve mentioned here, but you’ll go into details-
Jeff:
And, also, there’s-
Olivia:
This’ll be there in writing for you to go through and check off.
Jeff:
And, also, there’s about five stories of how people have defrauded companies. And, some are a bit humorous, and some are a bit sad. But, some are humorous, the way people get away with things. Like, the guy at the Stonnington Council that stole $600,000, and he was the events manager, and he was putting the expenses to repairs of the Malvern Town Hall. How is it possible that the CEO of the council, and the finance person didn’t pick that up? That’s a lot of money to fix the Malvern Town Hall.
Olivia:
Fix the Malvern Town Hall.
Jeff:
It took seven years to catch him.
Olivia:
Wow.
Jeff:
Yeah.
Olivia:
You kind of think that a council or some official body, like that, is going to have all these policies and procedures in place. But, not necessarily.
Jeff:
Yeah. Look, a lot of the fraud just never gets found, because they’re not as forensically-minded as me. A lot of people just don’t … They’re not looking for these sort of things. And, some things get picked up, but a lot of people get away with it. And, the bigger the company, and the more money they got, the less chance of noticing.
I posted, on one of your comments, about postage that went up in a business from $200 to $1,200, and that’s where you can pick up things. A friend of mine is an auditor, said to the receptionist, “Why are you buying all these prepaid Australian post envelopes?” And, she said, “Well, we’ve had a big demand for it.” So, she looked on eBay, just by chance, and she saw someone selling these envelopes on eBay, and it was the receptionist.
Olivia:
So, she’s got free stock to sell and 100% (profit) … You know?
Jeff:
Yeah. It’s only … It’s not a lot of money, but that should never have happened. But, people were just allowing her to buy these things, and not asking her, “Why you buying so many prepaid envelopes?” It all comes down to human nature. People just don’t check things, and have …
You need a tick and check system where things are ticked off, and you got two people approving things. That’s the best way. When one person’s controlling things, that’s where trouble occurs.
Olivia:
Is that something that people can come to you for help with, too, if they want actual … If they don’t want to have to figure it out themselves, you can actually do that, as well-
Jeff:
So, ’cause I do a, like I said, my free financial diagnostic review of their business. So, I’ll go through, if they’re willing to show me their financials, and it’s part of my review, I look at their systems and procedures, and the potential for fraud. They get a complete review of everything, and that’s fantastic, ’cause then I write up an action report what they need to do. And, that’s valued at $395. And, yeah, I’ve made and saved companies a lot of money by doing that …
I recently saved a business $65,000 in GST.
Olivia:
Wow.
Jeff:
That had to do with a supplier, and they weren’t putting all their invoices through their accounting package, and, Jeez they were rapt ’cause they had a payment plan with the ATO, and that reduced it dramatically.
Olivia:
Oh, my goodness. That went from having a payment plan to having $65,000 that they didn’t know they (had)-
Jeff:
Yeah, that’s right.
Yeah, but you got to be forensically-minded. And, that’s the way I am. A lot of accountants are a little bit robotic, and just crunch the numbers, and do the compliance. But, you’ve got to add value. You’ve got to be looking for things. And, when you’re looking for ways of improving the profitability and saving money, I compare costs from year to year, and budget. And, if I see something that looks wrong, like certain expenses have gone up, dramatically, I don’t assume fraud. But, I investigate, “Why has it gone up?” There could be a good reason, but it could be fraud.
And, that’s how you come across things by accident.
Olivia:
Hmm. So, yeah, you will find out a lot from when you look at the numbers, you’ll learn a lot more, don’t you? And-
Jeff:
Yep.
Olivia:
… especially if you’re forensically-minded, like you say, and dig deeper, and ask questions, and ask for the story behind those numbers.
Jeff:
Yeah, the numbers tell it all. They will give you the indication if something’s not right, and there’s some funny business going on.
Olivia:
All right. Well, do you have anything else you’d like to add before we-
Jeff:
No, I’d just like to encourage everyone to get the eBook. And, if you’re a small business owner, really, prevention is better than cure. Treat these topics seriously, it’s the same, and it’s not protecting your business name and logo. That’s another thing that I check with owners. Do you know that someone could knock of your name and logo if it’s not protected?
Have you checked your business insurances? Are you insured properly? These are all the things business owners, by nature, probably are not aware of. And, if you’ve got good external consultants, these are the people that give you the advice that can help your business.
Olivia:
Okay, well, definitely check out that eBook. Go and grab it, ’cause I can say that it’s really, really helpful. And, probably, if you don’t trust yourself to put it all in place yourself, then that’s something you can help-
Jeff:
Yep, I’m very happy to help.
Olivia:
… make it all happen.
Yeah, thank you Vikki. Yes, that’s amazing advice.
Okay. Well, I think we’ll leave it at that, and we’ll leave your contact details in the comments. And-
Jeff:
Yeah, well, thanks, Olivia. And, thanks to Officeway. I went to a Dandenong networking event, and it’s a great business out in Dandenong. Don’t assume Officeworks are the best or the cheapest. Officeway are a great company. And, I met Olivia at that networking event, which I go to quite a few. Thanks for the opportunity-
Olivia:
Thank you, and thanks for the plug!
Jeff:
Yeah. Thanks, Olivia. Okay. Cheers.
Olivia:
Bye.
Interview conducted by Olivia de Sousa-Ferres
You can contact Jeff Gordon from SMA Business Solutions here: http://prestigesme.com.au/
You can find the SEMBA South East Melbourne Business Associates Facebook page here.
SEMBA is sponsored by Officeway Furniture. The office furniture website is here.
