ARE YOU SETTING UP A SMALL COMPANY? MY ADVICE.

As a young firm,fraud,errors,manipulation,collusions are major hinderances to a start up. I will concentrate on work place fraud.

Workplace fraud is a common, everyday occurrence. Every business—large or small,es[ecially start up—is vulnerable to these crimes.

Workplace fraud can have a substantial impact on a business's “bottom line” and even on its continued survival and success. The financial impact of workplace fraud can be significant and can occur in the form of direct, indirect, and/or intangible costs. In addition to direct losses of tangible assets, such as cash, inventory, and securities, loss of competitive advantage, reduced ability to meet customer needs, reputation impairment, and disruption of business operations are some of the potential indirect and/or intangible costs to a business.

C O M M O N F R A U D S C H E M E S

This section offers illustrations of common fraud schemes for consideration in assessing your business risks. All names are fictitious and not intended to be or imply real persons or companies.I used it for the purpose of this discussion.

Vendor Schemes Payments to outside vendors represent a significant outflow of funds for most companies. Therefore, it is important to understand vendor fraud risks. Vendor Management “Ghost” vendors represent a common fraud device used by company insiders who have the abilities to approve new vendors to receive payments and to authorize such payments. In these types of schemes, a dishonest employee may establish a phony vendor account(s) that he or she controls and then direct fraudulent payments to that account(s). CASE STUDY Ade, a human resources manager for ABC Company, has authority over an annual training budget of N10 million. She routinely contracts with new vendors for training programs and approves payments to those vendors.

Ade asks Accounts Payable to establish a new vendor account for “XYZ Consulting Services” and authorizes payments to XYZ amounting to N5,000,000.00 over a six-month period. A subsequent inquiry about XYZ results in discovery that:

XYZ Consulting Services is a shell vendor operating out of a mail drop address. Ade is the only person associated with XYZ Consulting Services. XYZ Consulting Services never provided goods or services of any kind to ABC Company.

The invoices provided to Accounts Payable by Ade were never challenged, even though the service description was vague and no service agreement, nor any other documentation, was present in the Company files.

In many companies, vendor payments above a certain amount are subject to closer scrutiny, higher level approvals, or special reporting. In these cases, to avoid detection, an employee may set up multiple ghost vendors and make only one or two smaller fraudulent payments to each.Companies should be alert to suspicious patterns of vendor payments, including those that are “just under the radar” in terms of required approvals, reporting, or other company procedures.

Similar to a ghost vendor scheme is the dishonest employee who “takes over” a legitimate vendor account. In this case, the employee may simply change the mailing address shown in the vendor profile for an inactive company to one the employee controls. Of course, invoices begin to arrive from the formerly inactive company. Ghost-vendor schemes may also utilize company names that are intended to be similar to well-known, established vendors (e.g., a legitimate vendor named “Churchgate Group.” may be reestablished as a ghost vendor under the name “Chu Gate Ltd” or “C.Gate Ltd”

Cash Handling

CASE STUDY Obi worked as a clerk in a start up retail store. The point-of-sale scanning equipment he used to ring up customer purchases automatically captured the price of each item sold. Per company internal controls, all “till” was routinely counted and balanced at the end of each shift and discrepancies were not tolerated. Despite the apparent controls, Obi found opportunities to defraud his employer by:

Cash skimming: Obi often pocketed the cash paid by customers. In order to prevent detection and make sure that his till balanced at the end of his shift, Obi substituted large quantities of coupons that he clipped from the local paper for the cash he stole.

Skip scanning: When Obi rang up purchases for his friends and family, he often skipped the scanning of the most expensive items. These items went into the shopping bag, and out of the store, without payment.

Unauthorized discounts: Obi provided friends and family with unauthorized “discounts” on merchandise by overriding the scanned price and manually entering a reduced figure.

Fake refunds: Obi also took cash from the register till and covered for the shortage by falsely reporting cash purportedly paid out to customers as refunds

Responding to the threat of fraud can be challenging.

There is no “cookiecutter” fraud response strategy that is appropriate for every business. The diversity of fraud risks associated with different business environments and situations requires that fraud risk responses be appropriate for the specific business operations, business environment, and fraud experience. Consider that the “ideal fraud opportunity” might include any of the following factors: A weakness in the internal control system or the ability to easily override ■ ■ ■ ■

R E S P O N D I N G T O T H E T H R E A T O F F R A U D ■

1. Pressures or incentives to commit fraud sufficient to overcome the pressures or incentives not to commit fraud. the control system (i.e., an opportunity).
2. Pressures or incentives to commit fraud sufficient to overcome the pressures or incentives not to commit fraud.
3. Perceived reward for fraud is relatively high. Perceived risk of detection is relatively low. Potential penalty, if caught, is perceived as being small or relatively inconsequential.
4. Limit fraud opportunities by establishing strong internal controls and limiting overrides of those controls.
5. Manage pressures and incentives inherent in the business process (to the extent this is possible).
6. Focus fraud prevention and detection efforts on risks where potential financial loss is the greatest or where cumulative losses from smaller frauds may be significant.
7. Foster a strong “perception of detection” through proactive efforts by you.
8. Ensure that you are actively involve in your business.
9. if your background is not finance or account related,attend fresher course so as to have an overview of finance and acounting.
10. Create a whistle blowing haven and huge reward scheme.