Fraud Ruins Business!

Take it from a former fraud investigator, if you do not conduct due diligence on new hires, business partners and companies or individuals that you extend credit to, your business will more than likely end up as a victim of fraud or theft, which could put you out of business.  

My last case as a bank fraud investigator involved a company that was grossing about $8 million per year. They hired an individual through a human resources or hiring agency, and assumed they were getting a credible, experienced accountant; they did not conduct any due diligence to verify his credentials or the validity of his resume.

Over a 3 year period the alleged accountant siphoned slightly more than $750,000.00 from the company’s bank account. When the business account manager from the financial institution advised the owners that they were overdrawn on their line of credit and to do something about it, they went to the alleged accountant and said, “We’re overdrawn at the bank, please look after that.” 

Well, perhaps knowing the end was near, he withdrew another $60,000.00 over the next 3 weeks. What the Hey…he had nothing to lose. 

This put the company into bankruptcy… they learned the scope of financial problems they faced with unpaid creditors and no cash on hand when the bank stepped in and cut off the line of credit. 

They had no idea! They never once questioned this guy or had the books audited by an Independent Accounting Firm; they just kept working in their business and gave him free reign to write cheques and look after the payables and receivables. They gave all of their trust and faith and financial responsibility to him without knowing anything about him! 

So having read what happened we know that mistakes were made… as in: 

  • No employment screening to verify credentials, this guy was not an accountant and only had bookkeeping experience. The human resources or hiring agency had not verified anything about this Individual and the company owners never asked. 
  • A criminal record check was not conducted to ascertain if there were any theft/fraud charges in his background…guess what? There were.  
  • An independent auditor did not audit the books; this should be done semi annually for any company, it minimizes income loss should this scenario ever occur, and if an employee with criminal intent knows an audit is conducted semi annually, will he/she have 2nd thoughts? Probably yes.  In too many fraud investigations this kind of scenario was totally preventable by implementing some company policy regarding audits. 
  • There was no company policy with respect to internal theft, or fraud and use of company equipment; A Notice to Employees advising of the consequences for stealing from the company would likely have gone a long ways to preventing the theft.  Companies generally don’t think of having a Notice to Employees dealing with this kind of scenario. They should… and this website has one. 
  • There were two partners in the business who were both working long hours, 6 days a week. They entrusted this individual with everything… and there were no checks or balances!  

The alleged accountant was charged criminally, and went to jail for a short period of time. Fraud and theft from a Company is not a violent crime, the courts in this country are lenient in most cases anyway. Fraud and theft are barely on their sentencing radar screen. 

The company never recovered one cent as ALL of the money was invested in some off shore ponzi scheme which couldn’t be traced. Yes he had lost all the money and that was verified. 

Employment screening is one of the most important factors for any business owner… why? 

  • Establishes trustworthiness
  • Verifies documents & credentials 
  • Verifies statements made on the resume
    Over 50% of all resumes are exaggerated. 
  • Suitability for specific job.
    Does the applicant have a criminal record for theft/fraud that would preclude him/her from that accounting position? Does the truck driver have a valid driver’s license? Does that welder or mechanic have his/her journeyman’s ticket? 

Don’t allow your company to become a fraud or theft victim… 

Bizfraud can help minimize the risk of income loss in many areas of your business. will give you tips & advice on how to prevent fraud as a Business Owner.

Marv Steier
TVS Small Business Service dba Bizfraud