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Are You Protecting Your Small Business?
By Peggy Baker, CPA
Small businesses may be vulnerable to several types of fraud including asset misappropriation and collusion. According to the Association of Certified Fraud Examiners (ACFE), occupational fraud occurs an average of 18 months before it is discovered. When thieves avoid detection, they are motivated to steal even more. In addition, the losses per employee from fraud in small businesses are 100 times greater than those at their largest counterparts.
Nine out of ten occupational frauds involve a company’s cash. Cash is vulnerable in three areas: (1) skimming, which is stealing money from the company before it is received and recorded; (2) larceny, which is the theft of cash after the company has received and recorded it; (3) fraudulent disbursements, which includes paying false invoices, paying unauthorized vendors or employees, falsifying documents and unauthorized use of credit cards.
Business equipment, inventory and supplies can be vulnerable also. Laptop computers, software, electronic equipment, office supplies and inventory items, such as food, clothing and merchandise can sometimes be easy targets for misappropriation. Employees who steal usually opt for stealing something that is particularly useful to them personally or that can be sold or traded easily.
Some questions business owners should ask themselves include: are salespersons, purchasing agents or other employees receiving enticements from outside the company, eg., free trips, kickbacks? Are employees trying to meet goals to receive a bonus? Are company assets being used for personal reasons?
According to ACFE, there are three reasons small businesses are vulnerable to fraud: (1) limited internal controls, (2) too much trust, and (3) inadequate employee prescreening. The foundation of fraud prevention is the segregation of duties between employees. The reason is straightforward enough: it is one thing to steal by yourself but quite another to enlist the aid of a co-worker. Trust is an essential element of business as well as an essential element of fraud. The goal is to strike a balance between the two.
The thing to remember is that all fraud is done by those we trust and that trust is not a control. Employee prescreening is difficult. Former employers, because of potential liability, do not release enough meaningful information. However you can request professional recommendations, check for criminal records and require drug screening.
Business owners need to be aware of some of the common warning signs or red flags: rising expenses, declining revenue, a department is over budget, abnormally high inventory shrinkage, new or unfamiliar vendors, absenteeism, employees living beyond their means and/or demonstrating suspicious or inappropriate activities.
Small businesses, especially those that do not have regular audits, have every reason to worry about fraud. Most small businesses don’t need a financial statement audit; however, CPAs can provide a number of fraud prevention services, such as internal control reviews, design of internal controls, cash reviews and reconciliations, inventory observations and asset verifications.
Fraud is a cost of doing business that is hidden from view. We know about fraud only when it is discovered. Completely eliminating the potential fraud is not possible, but with reasonable measures, its impact can be limited.
There are several ways small business owners can reduce the risk and help in the detection of fraud. Those include implementing an overall system of internal control and reviewing it frequently, restricting bank account access, performing regular bank reconciliations, separating duties among employees, rotating job responsibilities periodically, utilizing a company policy and procedure manual, adequately securing inventory and supplies, conducting surprise audits, performing thorough background checks before hiring, engaging a CPA to examine the books or perform an internal control review, and most importantly giving your employees a safe and comfortable way to report fraud.
Market Watch: Do You Remember The Last Time The Market Was This High?
By Robert Jorgensen, CIMA, of Legacy Advisors, LLC
You should, because it was almost exactly four years ago. January 10, 2000 the U.S. Stock Market, as measured by the Dow Jones Industrial Average, made an all-time closing high of 11,722. As of this writing on February 20, 2004 we are at 10,619. It has moved +48% from its closing price of 7,524 on March 11 of last year.
The NASDAQ’s (U.S. over-the-counter market) all time high was March 6, 2000 at a whopping 5,048! Today even with the 12-month rally of almost +68% the NASDAQ is at 2,037 as of February 20, 2004. Unfortunately that is still only about half of the value of its previous high. As most people are aware we have had a great 12-month run in both of these markets. In history, anytime there has been this kind of a move in the market over such a short time period we are generally due for a pause or an adjustment.
The question many of you should be asking yourselves is the following: How is my current portfolio positioned?
1. Did I participate in this recent market rally or was I too conservative?
2. Are some of my investments performing poorly?
3. Are some of my investments up over 50% in the past year and now I need to rebalance?
4. Are these historic interest rates going to stay down and should I take a look at my Bond Portfolio?
5. Am I properly diversified in Growth, Value, International, Small, or Large Cap Stocks?
6. What have I earned on an annualized basis the past five or six years with my current investment advisor or bank?
7. Are my current fees and expenses reasonable for the advice I am getting?
8. I am now retired or have a good idea when I would like to retire. Do I have enough assets to live comfortably?
9. Is my company's retirement plan properly invested to maximize long term growth and reasonable risk?
10. Should I get a second opinion on these or other questions about my financial future?
Answer: YES!
If you would like to discuss these or other questions please give us a call. Based in Reno, Sierra Investment Advisors of Nevada is an affiliate of Barnard Vogler & Co., yet we are a completely independent investment advisory firm. We will offer you a free no obligation evaluation of your current investment program at your convenience. SIA offers fee-only financial planning and investment advisory services SIA belongs to a network of nationwide Legacy Advisor offices that have client assets in excess of $600 Million.
Please give us a call at 775-324-7606 to set up either a phone or in-office appointment.
Getting Familiar With The New Antifraud Standard
By Peggy Baker, CPA
The reaction to high profile fraud cases, such as Enron and WorldCom, resulted in the passage into law of the Sarbanes-Oxley bill, which targets public companies. While Sarbanes-Oxley does not apply to privately held companies, there has been some "spillover" that will affect how privately held companies as well as not-for-profit and government organizations are audited for 2003 and beyond. The American Institute of Certified Public Accountants (AICPA), through its Antifraud and Corporate Responsibility Programs, has also responded and issued a new auditing standard No. 99 "Consideration of Fraud in a Financial Statement Audit" (SAS 99).
SAS 99 supersedes a previous fraud standard and establishes standards that require auditors to sharpen professional skepticism in order to increase the likelihood of detecting material fraud during audits. In addition to audit procedures previously performed, auditors are required to meet with certain levels of management as well as other key employees to discuss potential areas of fraud, enhance analytical procedures, and to obtain a better understanding of internal controls.
SAS 99 is effective for audits of financial statements of all companies, whether publicly or privately held, for periods beginning on or after December 15, 2002. Additional time will be spent on audits in order to fulfill the requirements of SAS 99, resulting in an increase in audit fees.
Clearly, the fight against fraud is not just the external auditor's responsibility. Owners, management, boards of directors, audit and finance committees, internal auditors and employees have a role in detecting fraud; however, your CPA can bring various technical skills and expertise to the effort. The fight against fraud begins with strong fraud prevention programs and good internal controls. SAS 99 requires auditors to review the organization's programs and controls to assess fraud risk.
The risk of fraud can be reduced through a combination of prevention, deterrence, and detection measures. Fraud is often difficult to detect because it frequently involves concealment through falsifications of documents or collusion. Therefore, it is important to place a strong emphasis on fraud prevention, reducing opportunities for fraud to take place, and fraud deterrence, persuading individuals not to commit fraud given the likelihood of detection and punishment. Moreover, the time and money spent on prevention and deterrence measures are normally much less than fraud detection and investigations require.
If you have any questions about Sarbanes-Oxley or SAS 99, please contact our firm.
Client Profile: A&B Precision Metals, Inc.
By Ed Adkins
For our latest client profile, Barnard, Vogler & Co. is spotlighting a local business whose name describes not only their product, but also the key to their success. Privately owned and operated since 1970, A&B Precision Metals Inc. is a company who aims to prove that the “precision” in their name stands not only for their well crafted products, but also the manner in which they conduct their business.
A&B is a full service precision fabrication facility, specializing in a wide variety of sheet metal solutions for an equally varied collection of clients. From machining and welding to laser cutting, A&B has the expertise and flexibility that has enabled them to respond to client needs along the entire product lifecycle, including prototypes and regular production. They also offer many other services such as assembly, welding and coating for clients in the telecommunications, electronics and communications industries as well as a worldwide fountain producer.
What truly sets them apart, though, is not only the superior product, but a philosophy of doing business that surpasses common notions of efficiency. Employees at A&B don’t tolerate waste, whether it has to do with materials or time. This is because they employ a system of Just in Time production, eliminating unnecessary warehousing and products are fabricated as their customers need them. This process requires great commitment and attention to detail in order to make each product perfect the first time, enabling them to provide the value of excellent service to their clients.
Barnard, Vogler & Co. is delighted to serve A&B Precision Metals, Inc., and knows that if any company needs work done in metal fabrication, then A&B is precisely what you're looking for.
Employee Profile: John Logar
The Barnard, Vogler & Co. family continues to grow with the recent addition of John Logar, a Reno native who has joined the firm as a staff accountant.
While he may be new to the firm, John is no stranger to two of our employees. Coincidentally, John attended high school with Mike Davis and Dawn Connolly.
John brings with him not only a great attitude, but also eighteen years of experience in transportation and operations management with a top global shipping firm, giving him a valuable depth of understanding about the operational issues that face our clients.
Some of the long-time residents of the area may remember John from when he did custom gunsmithing at his shop in Sparks.
According to John, most of his interests take him outdoors. He loves hunting, hiking and camping, as well as fly fishing, which he has been involved with for ten years. On his latest outing he enjoyed seeing his 11-year-old son, Garrett, get his first pheasant.
John and his wife, Patti, are active members of their church and love spending time with their family. John’s daughter, Stephanie, 12, and stepson Kyle, 14, both attend Mendive middle school. His son, Garrett, is a fifth grader at Bud Beasley Elementary.