Every business faces threats from fraud — from within and from without. Your knee-jerk reaction may be that fraud couldn't possibly be going on under your nose in your own business. I once discussed fraud with a man who served hard time in the Nebraska State Penitentiary for embezzling over $300,000 from his employer. He said that such a cocky attitude by a business manager presents the perfect opportunity for getting away with fraud (although he tripped up, obviously).
Without you knowing about it, your purchasing manager may be accepting kickbacks or other "gratuities." Your long-time bookkeeper may be embezzling. One of your suppliers may be short-counting you on deliveries. I'm not suggesting that you should invest as much time and money in preventing fraud and cheating against your business as do Las Vegas casinos. But every now and then you should take a hard look at whether your fraud controls are adequate.
Preventing fraud starts with establishing and enforcing good internal controls, which I discuss in Chapter 3. In the course of auditing your financial report, the CPA evaluates your internal controls. The CPA will report to you any serious deficiencies. Even with good internal controls and having regular audits, you should consider calling in an expert to assess your vulnerability to fraud and to determine whether there is evidence of any fraud going on.
A CPA may not be the best person to test for fraud — even if the CPA has fraud training and forensic credentials. A private detective may be better for this sort of investigation because he has more experience dealing with crooks and digging out sources of information that are beyond what a CPA customarily uses. For example, a private detective may install secret monitoring equipment or even spy on your employees' private lives. I understand if you think that you'd never be willing to go so far to defend yourself against fraud, but consider this: Someone committing fraud against your business has no such compunctions.
