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Canyon de Chelly

AZ Fraud Fighter Newsletter 2/15/12


How Safe is Your Business From Fraud? 

Is Fraud Inoculation Possible for a Small Business? 

Part 3 of 10

Fraud Details

For emergencies, the CFO, Ted (not his real name), was a signer on the checking account because the owner and main check signer's office was 25 miles away in a different city.


Forensic accounting showed Ted signed 73 checks paying $231,299 for various personal bills (mostly personal credit card accounts) over a fifty-seven month period. Including, during the last few months, directing five automatic payments hitting one checking account, to pay for personal expenses.  


67 of those 73 checks were manual checks, which manual checks were supposed to be used for emergencies happening outside of normal check run periods. We can only imagine what emergency caused Ted to date the last manual check he signed, payable to one of his credit card accounts, early the morning he flew to Italy!


Towards the end of his embezzlement, one of the creative ways Ted found money to steal was to lock away a number of vendor checks in a file cabinet, to be mailed much later, if ever. When suppliers called looking for their check, they were given a check number, an amount, and a date and asked to be patient waiting for the mail.


In fact, the cash crunch got so bad under Ted's watch, after the company credit line was secretly used up in November 2007, the former CFO put $12,500 cash of his own money (well, by then was it really Ted's money?) into the company bank accounts, without telling anyone, then continued his fraud for six more months, until he was confronted, confessed and fired in May, 2008.


The last six months of company business was good enough that the last six months of embezzlement by the former CFO netted him another $55,219.

To be continued next newsletter

Interesting Fraud Fact -


Fraud Tip - To reduce fraud opportunity, separate risky functions by making sure the person who counts the cash and checks is not the same person who makes the bank deposits.

Schedule a Fraud Risk Assessment today. Click here to contact EFM
Caught by the law
Going to jail

Economic Indicators:  

Consumer Price Index or Inflation.  

Should we be worried?   


The classic explanation for inflation is too much money chasing too few goods, which certainly describes well the current situation in America. Why then, aren't we plagued by inflation today? Without getting too technical, may I offer some perspective?


In the two-year period from late 2009 to late 2011, according to Federal Reserve statistics, the US dollar monetary base grew around 28%. And M2, the broadest measure of the money supply, increased 12.9% for the similar two-year period between November 2009 and October 2011. During that time-frame, America's GDP grew perhaps 5%, or approximately 40% slower than the growth of the money supply.


The Nobel-prize-winning economist, Milton Friedman, claimed that the primary function of the Federal Reserve ought to be basically matching the growth of the money supply with the growth of real GDP, keeping the inflation-dragon at bay. But that is not happening at the moment as the Fed is busy monetizing debt. 


Currently, if product prices go up, then consumers quickly seek substitutes.  

Most retailers today tend to lower prices to make sure that inventory turns over regularly, even at a lower margin, instead of simply raising prices to generate larger profit margins. Nor are there widespread strikes over wages being too low. Instead of wage demands to raise the cost of labor, causing ripples that beget rising inflation, most employed Americans are grateful to have a job.


Obviously, business activity of the entrepreneurial sort is strongly muted today, during what has been dubbed the 'Great Recession'. As I noted in the last two AZ Fraud Fighter newsletters, though GDP is up a bit, at least nominal GDP is, the real Unemployment Rate, at 12.1% (if we count those people who used to be employed, yet at this time are too discouraged to even look for a job) is still significant enough to heavily constrain inflation pressures, at this time.


While we are not in a recession, technically, as GDP is growing, but because so many people are still unemployed, the effect is that the economy feels like it is still in a recession, to many people.


What about when a significant recovery finally comes - will we experience significant inflation then? Probably we will, because Ben Bernanke, the current Fed Chairman, has not shown the same aptitude for monetary manipulation that has been demonstrated by either previous chairmen like Paul Volcker or Alan Greenspan.  

If you have a lunch group or a breakfast group looking for a dynamic speaker to make a meaningful presentation, then email or call EFM today @ 480-577-6776 to schedule a presentation on Fraud Awareness and Fraud Prevention.
Paul Updike, MBA, CFE, UOP Faculty Practitioner
Executive Financial Management
(480) 577-6776