Hi LinkedIn readers! Let’s talk about a Fraud affecting Main Street Businesses. Are you a small business that is not publicly traded and you have a staff of 1-20? Then you are a Main Street Business.

Main Street Business Fraud stems from the Opportunity side of the Fraud Triangle. Opportunity means what aspects in the corporate culture helped create the possibility for fraud to happen, and/or in what aspects of the corporate culture did the Fraudster find Opportunity to commit fraud?
Defrauded business owners are indeed victims, but it takes to defraud, uh, I mean, tango. Let’s look at how business owners almost beg to be defrauded. Fill in your answers to each of these questions:

1. Doesn’t know anything about running a business or accounting…AND DOES NOT WANT TO LEARN.
Fill in what opportunity the Fraudster sees: _________________________________________________

2. S/He has 3 PhD’s, a JD, an MD, DDS or some other degree of higher learning and it is BELOW them to look at something as mundane as accounting, or god forbid, bookkeeping!
Fill in what opportunity the Fraudster sees: _________________________________________________

3. I don’t have time to spend on all this accounting and finance stuff, that is why I hire others to do it. I have more important things to do! Let them handle it.
Fill in what opportunity the Fraudster sees: _________________________________________________

4. My mom, my son, my husband, my best friend, my lover, etc. does my books, and I trust them implicitly! They would never steal from me!
Fill in what opportunity the Fraudster sees: _________________________________________________

5. I inherited the company. It really is not my job, even if I am the owner now. So leave me alone!
Fill in what opportunity the Fraudster sees: _________________________________________________

Here is the $65,000 question for you, Mr./Ms. Mainstreet Business Owner:

1. Whose business is this really, yours or someone else’s?

2. Who is ultimately responsible for the entire business?

3. Who signs the tax returns?

4. If you were not a Main Street Business and sold stock, who is subject to Sarbanes Oxley requirements?

Email me if you don’t know the answers!

Reflections:
1. John runs a plumbing company. Until he caught onto my beloved Fraudster/Felon Diana, he could not be bothered with accounting or running the company. And she ran away with the $263,000.

2. Jane, an Oral Surgeon never wanted to look at her books. That was her Administrative Assistant’s job and below the lofty activities of this this DDS. Well this Admin needed to get a broken heater in her home fixed but had to be at work. The Admin used the DDS’s account to cover the HVAC. Then she used it again, and again, until the DDS paid for her new roof, and ultimately, a new BMW. Jane is out of business. Admin has a spiffy car….

3. Ezra had a very busy law practice and almost always in court litigating all the time. The clerk who entered retainer fees into his IOLTA account began to “tithing to herself 10%” these retainer deposits. A client filed a complaint with the VA Bar about missing funds. Ezra no longer practices law.

4. Christof’s long-time friend worked for him in his repair business. Christof loved and trusted all his workers. The entire company used one username+password to access QuickBooks. His friend printed out $200 invoices for customers paying cash, reprinted the same invoice for $100, and pocketed the difference. His friend’s theft cannot be traced because using only one password prevented tracing.

5. Jacquie, inherited the company, and still says “I don’t want to do it!” But the company is hers. Most businesses owners don’t want to do the finances, but finances are your business’s “spinach.” Learn to eat it, learn to like it, and your business can grow strong like Popeye! Hate it and risk losing everything.

RED FLAGS:

• Is the marriage on the skids, and both still involved in the business?
• Do you have shady siblings?
• Did Dad get diagnosed with cancer and didn’t tell you; he only took $$ to pay for chemo?

RMOHC and the business owners:
Do you resemble any of these 5 characters? If so, we need to talk soon.
RMOHC Clients: 1. John, 3. Ezra, and 4. Christof.
John got Diana convicted. He is still in business and expanding.
Ezra did not want to put the time into the IOLTA account, and I lost track of him (tends bar?).
Christof enacted a new internal controls system RMOHC developed and is thriving.

Do you resemble John, Jane, Bob, Christof, or Jacquie?
    -Definitely contact me.

Are your finances funky from “those you trust” helping you? Contact me immediately!

Michael O’Hanlan Consulting (RMOHC) is an accounting consulting firm based in the Washington, DC area.  Michael O’Hanlan is a Certified Fraud Examiner and an Operational Accountant.  RMOHC specializes in accounting cleanup and organization for commercial and government contract clients, fraud prevention, and training services and to keep clients profitable, legal, and compliant.

Hi LinkedIn readers!  Let’s first talk about the concept of Main Street Fraud. 

When you study accounting, your examples present large corporations that have limitless staff to divide up accounting processes (i.e. segregation of duties), and limitless funds for the costs to use these systems.  They have fully staffed Accounting and Human Resources Departments so that the class can focus ONLY on the accounting issues.  The companies are large, perpetually profitable, publicly traded companies.

In real life, the fraud I deal with involves companies that are small, no, tiny: 1-15 people.  There is rarely any Accounting Department for keeping the books, and usually no Human Resources Department for on-boarding.  And they use QuickBooks, if any software at all.

A respected Fraud Examiner and Presenter, Kelly Paxton (of “Pink Collar Crime” fame), taught me a great term:  Main Street Fraud.  It refers to the fraud issues that affect smaller companies we find on Main Street, in Downtown, USA.  Main Street Fraud happens way more often, it doesn’t make the headlines.  It is not glamorous.  Main Street Fraud should be a regular article appearing in the ACFE journal “FRAUD” and feature Main Street Fraud Examiners in action!   [hey ACFE:  HINT!]

My beloved fraudster, Diana, worked for a small plumbing company.  She defrauded her employer out of $263,000.  They had an employee handbook, but no internal controls.  Her employer did prosecute, and she was found guilty of one felony count.

Prosecution is often costly, professionally embarrassing, time consuming, and frequently not worth it to the victimized companies.  But this is where the fraud seems to happen most often.  The focus of my writing is aimed at Main Street Businesses.  My goal is to give them ways to prevent other Diana’s from harming you and your businesses.  The victim of this article, a Main Street Business is really challenged if he wants to prosecute his fraudster, and you will see why very quickly.
So, I am starting with basics: usernames and password.

The Case of the Single Username & Password:

I had a recent client that brought me in for an embezzlement engagement.  As I interviewed him, it turns out that an employee/friend of his (of 15-20 years!) had been embezzling funds for almost as many years as they had been friends.  Embezzler earned the owner’s trust and took advantage of him.  When the owner discovered the embezzlement, he fired the thief.
How did the embezzler do it, and how did he get away with it?  Here was his process:
1. He went into QuickBooks
2. Printed out an invoice for a customer for $200
3. Then reprinted that same invoice for $100
4, Gave the customer the $200 invoice which s/he paid in cash
5. Turned in the $100 invoice to the company cashier with $100 in cash
6. And pocketed the $100 difference.

RMOHC: “Did you look into QuickBooks to trace what happened.”

Client: “You won’t find anything.”

RMOHC: “Why not?  Who has access to QuickBooks?”

Client: “Everyone, we all share the same username and password.”

RMOHC: “THE SAME?  Doesn’t everyone have their own username and password?”

Client: “No.  Only one came with QuickBooks, so we were stuck with using what they provided.  Besides, we only use QuickBooks track the invoices.  The CPA does all the rest, so we don’t need more, do we?”  [go ahead and gasp!]

Simple story short.  The Client got ripped off for who knows how many years, because the fraudster used the company-wide username and password to get into QuickBooks.  There was no way to identify the embezzler’s access vs. the owner’s access, nor was there any trail to follow.    

My Asset Misappropriation Engagement suddenly became an Internal Controls System Setup & Implementation Engagement.  You know what usernames & passwords are but consider these points:

USERNAMES are:
1. …key to keeping your financial data safe (and reduces “Opportunity” in the Fraud Triangle).
2. …means to limit who can get access to what in QuickBooks and more.
3. …great deterrents to fraud, because an audit trail is created based on the username.
4. …wonderful tools to help the segregate financial duties.
5. …NOT HARD to set up.  If you need help with them, I can help you!! [note the blatant self-promotion!]

PASSWORDS are:
1. Easy to set up for each user, and then the user can change it to something personal
2. Best if you avoid the common mistake of using: “password” or “123456”, or some other common pattern.  These are easily hacked.

TAKE AWAY:  NEVER SHARE A USERNAME AND NEVER SHARE A PASSWORD!

Contact RMOHC to help you work with usernames and passwords across your entire company!  Click here: (info@rmohc.com) to schedule a free initial consultation.

Michael O’Hanlan Consulting (RMOHC) is an accounting consulting firm based in the Washington, DC area.  Michael O’Hanlan is a Certified Fraud Examiner and an Operational Accountant.  RMOHC specializes in accounting cleanup and organization for commercial and government contract clients, fraud prevention, and training services and to keep clients profitable, legal, and compliant.