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You can Easily Reduce the Risk of Fraud Impacting Your Business

“Rather fail with honor than succeed by fraud.” – Sophocles

Some people live by Sophocles’ principle. Others do not. As a consequence, good, smart, and successful people ask our Firm and forensic team to figure out whether they are or have been ripped off and, if so, what to do about it. Being good at business is not enough.

Fraud is rampant. The numbers vary, but reports estimate that fraudsters steal between $27B and $50B each year. Heck, Bernie Madoff apparently stole $50B in just one scheme. The actual losses may be greater.

Most fraud is unreported. The experience is personally painful because fraud is effected abusing misplaced trust. Businesses owners partially blame themselves for enabling the fraudsters and do not want to admit that their controls are ineffective.

Fraud is most costly for a small business. Bloomberg has reported that small businesses companies with fewer than 1,000 employees on average lose $150,000 per incident. Larger companies lose only about $71,000 per incident.

Victims usually could have prevented the fraud. The Association of Certified Fraud Examiners (ACFE) 2015 Global Fraud Study states that members identified a pre-victim detection red flag in 92% of their investigations, and two red flags in 64%.“ Shaffer Law # 3 would appear to apply here. “Dreaming is not preparation.”

We are all at risk. We see fraudsters in every economic sector. We see fraudsters use every tool imaginable, false banking or asset ownership documentation, unenforceable contracts, bogus bank and corporate letterhead, emails, the internet, We see frauders use every conceivable scheme, embezzlement, skimming, double sets of books, surreptitious bank accounts, fabricated receipts and records, false billing, investment groups, bond and commodities trading, stock account churning – you name it. And, we see fraudsters steal from everyone, the company, contractors, vendors, donors, investors, contractors, sub-contractors, government – again – you name it.

You can easily reduce the risk of fraud impacting your business. To steal your assets, fraudsters must have uncontrolled access to your assets and data, i.e., proprietary information, financial information, banking and payments, billing, vendors, customers, expense reporting, and/or bookkeeping. Stealing is easier if they have access to multiple asset classes. To prevent fraud, you simply must control and cross-check accesses, monitor, and audit activity, and encourage a culture of collaboration, loyalty, and integrity.

Here is what you do.

  • Consult with someone – maybe us. Three Shaffer Rules apply. No. 2, “Hiring a lawyer to win a lawsuit is a lot more expensive than hiring him to property structure the deal or contact in the first place.” Rule No. 7, “Do it right the first time.” Rule No. 9, “People know things that you don’t know.”

  • Move Quickly. Fraud is a “lifestyle crime.” Fraudsters tend to spend the money as quickly as they steal it, cars, cars for mom, jewels, clothes, the race track, and etc. Delaying calling in the experts likely will substantially reduce your recovery.

  • Let Someone Review trade and contract Documents and due diligence. Experienced lawyers and accountant usually can spot bad documents by simply reading them and flawed security by asking you a few questions.

  • Adopt and Maintain Good Controls: Shaffer Rule No. 4 states, “Success is based upon preparation, care and execution.” Access to proprietary information, banking, billing, accounting, collections, must be restricted, documented, reviewed, and silo’d on a “need to know” “need to do” basis. Real time monitoring and cross-checking by different personnel is very effective (absent conspiracy).

  • Create the right atmosphere. A culture of collaboration, loyalty, and integrity will go a long way to ferret out suspicious behavior.

  • Be vigilant and require that others do the same. Shaffer Rule No. 8 applies. “There are no coincidences.”

  • Actively seek and remedy system weaknesses and failures. Shaffer Rule 10 applies. “Things Change.” Fraudsters believe that they are entitled to your money. They will test old and new controls for weaknesses before they act.

#Fraud #smallbusiness #businessorganization #VirginiaAttorneys #MarylandAttorneys #DCAttorneys

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DISCLAIMER: The information discussed in our blog is generally gathered from third party publications. The Shaffer Law Firm does not assert the truthfulness of the content of third party publications. The information from third party publications is repeated solely for commentary on the legal system and how best to use it, it is not meant as commentary on the persons and facts actually involved.

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