Five Questions With: Boyd Foster

"WHILE GREED has been the prime motivator of fraudsters in the past, today's perpetrator of fraud is often motivated by personal hardship," said Sullivan & Company Principal Boyd Foster. /

Boyd Foster, a principal at the CPA firm of Sullivan & Company, is also a certified fraud examiner. He says fraud often takes the form of payroll schemes, cash misappropriations and billing deceptions. In a recent high-profile case, a N.Y. contractor has been accused of bilking millions of dollars from Webster Bank. But Boyd says the theft is just as likely to come from within.

PBN: What motivates fraud in the workplace? And how has it changed in this challenging economy?
BOYD:
While greed has been the prime motivator of fraudsters in the past, today’s perpetrator of fraud is often motivated by personal hardship. Business owners should pay close attention to extreme challenges faced by employees that may cause instability in life circumstances. A spouse out of work or signs of financial pressures from mortgage payments or credit card debt may sometimes be enough to motivate a stressed employee to do the wrong thing.

PBN: Who is the typical fraudster in terms of personal profile?
BOYD:
According to the Association of Certified Fraud Examiners 2008 Report to the Nation, the “average fraudster” is an educated male in his 40s acting alone. With 40 percent of perpetrators earning less than $50,000 per year, they are especially hard hit by economic downturns.

PBN: Describe some instances of fraud you have seen in small business settings.
BOYD:
Not surprisingly, cash is often a fraudster’s most attractive target. As a result, an organization is most susceptible at those points where cash comes into or leaves the business. I have seen numerous instances of fraud committed by employees who (a) had responsibility for disbursing payments to suppliers or receiving incoming payments from customers, and (b) operated with little supervision. In each instance, there was an element of blind trust on the part of the owner or supervisor. Ultimately, this trust was no substitute for good controls, including vigilant management oversight.

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PBN: What tips would you offer for prevention and deterrence?
BOYD:
To deter cash theft, business owners should be sure to receive unopened bank statements and review transactions prior to giving the statements to bookkeepers. Owners may even want to receive the bank statements at home. Avoid the use of signature stamps for check-signing and establish dollar limits on check-signing authority.
On a more general basis, conduct criminal background checks on all pending new hires. Ensure all employees have individual computer passwords and access to only those systems that are required for their job functions.

PBN: What are the red flags business owners and management should look for?
BOYD:
Downsizing leads to more situations in which employees may be performing incompatible duties with lack of separation of critical functions. In addition, the burden of an increased workload and the uncertainty of continued employment may create an environment where employees feel justified taking funds or goods from their employer.
Unwillingness to share duties and reluctance to take vacations are possible indicators of fraud. Interestingly, 46 percent of fraud in the workplace is detected by a tip from within. Trust your instincts: If something does not seem right, be sure to investigate.

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