Who Am I and Why Do I Write About Fraud?

 

I always cheer for the good guys and gals. Not the kind in the movies but the real ones who live and work every day trying to make our world a better place. The few times I got into fights growing up was when I was trying to stop someone from taking advantage of another. I didn’t always succeed but I felt better for trying.

The opposite of those good people are the ones who avoid the hard work of life looking for an easy slide into unearned respectability and prosperity. The ones who try to earn your trust and then betray it. I have had experience dealing with them and want to help others avoid being victimized.

My experience with fraud and those who commit it grew slowly. I spent a few years as an officer in the Army. In one assignment I was responsible for accounting for every piece of equipment for an artillery battalion. So much equipment was missing that our battalion commander could have been court-martialed. Instead he used subterfuge to hide the losses from the inspectors and ensured that I was never interviewed by them. From that I learned two things, the value of internal controls to prevent losses in the first place and how the tone at the top filters down to the entire organization providing the basis for its culture.

Decades of experience in the financial services industry gave me more experience with those who do commit or who try to commit fraud. As a credit analyst I listened to company executives and investors talk about their vision and how our loans could help them achieve that vision. I scoured their financial statements determining if they had the financial strength to handle the loans, looking for signs of weakness and identifying loan structures that would give the borrowers what they needed while protecting my company as the lender.

That experience showed me that most people are honest when things are going well….but place them under financial pressure and some will look for the easy way out. Two examples:

A small building supplier asked for a line of credit to fund inventory and would pay down the line as they booked sales. The inventory was purchased but almost immediately the company’s sales started to fall. After too many months of interest only payments I investigated and discovered that the owners (a married couple) found it easier to use the cash from sales for new cars, home improvements and parties than to pay down the line. They just chose to stop reporting the sales. One Monday morning we discovered that they skipped town and all of the inventory had been sold.

In an internal case one of our operations leaders skimmed cash from loan payments and changed the reports to make it look like all payments had been made. The leader could not keep everything hidden and before too long the accounts were out of balance. We looked at him for an explanation. Again I investigated and reported to our CEO what I found. This was a small bank in a small town. Rather than create bad publicity the CEO allowed him to retire and the bank took a loss to bring the loans back in balance.

These experiences gave me insight into when people might turn to fraud. A few years ago I knew I wanted to help companies prevent these events from happening to them so I earned my Certified Fraud Examiner (CFE) designation. I planned for a second career after my decades in financial services helping small and medium size businesses and non-profit organizations prevent being taken by those looking for easy money. The first step is educating others with examples and discussions. That is what you will see in future posts.

If your company has been a victim of fraud let me know if you are willing to discuss it with me.  It would be helpful to other entrepreneurs to hear about real life examples of fraud, loss and recovery.

Let me know what you think…..

 

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