Entrepreneurs Beware of Internal Fraud Schemes

Just when many small business balance sheets are reeling due to the struggling economy, a hidden threat to profits could be lurking in the back office.  Internal fraud has been on the upswing since the recession began.  According the Association of Certified Fraud Examiners (ACFE) misappropriations and other forms of fraud have hit small businesses at a disproportional higher rate than larger concerns.  If we consider that often time entrepreneurs lack the know-how (or the sufficient bandwidth for that matter) to put in place appropriate financial controls to prevent or detect fraud, you understand why they’re being taken to the cleaners more frequently. As you might imagine the theory of cause and effect is at play here, since mounting job losses and eroding safety net act as motivation for dishonest and trust unworthy employees to wreak havoc on your hard-earned profits.

The following article from the WSJ describes the plight of two small business owners and the fraudster (You guessed it, trusted insiders) that almost cause their businesses to cave in. Learn how they felled prey to these fraud flunkies and the price they had to pay.  There are important lessons on two key prevention strategies: vigilance and separation of duties.

Read more at:  When You’re Most Vulnerable to Fraud – http://bit.ly/cZwJDS

Fraud Prevention Tips:

  • If you’re delegating responsibility for accounts receivable and the company’s disbursements, don’t put the same person in charge of both, even if it means you have to hire an additional employee.
  • Bring in an outside accountant at least once a year to review your business financial records. Typical fees are $100 to $150 an hour, depending on how organized your records are. Consider retaining different outside accountants occasionally to have a fresh eye involved in the review.
  • Be aware of employees who are involved with your company’s finances and never take time off. Embezzlers rarely take vacations for fear their theft will be discovered by someone filling in.
  • Embezzlers usually spend the money they steal very quickly. Tip-offs include changes in lifestyle such as spending on expensive cars and vacations.
  • One common internal fraud is kickbacks involving vendors, so stay alert to unusually close relationships between employees responsible for finances and suppliers and customers.
  • Be the first person to open your monthly business bank statements. Even if you don’t have time to examine them closely, your attention sends a message to any potential fraudster.
  • When perusing your bank statements, don’t just look at the numbers; examine the actual images of canceled checks. Otherwise you can’t confirm where the money really went.
  • Remember that some internal theft doesn’t leave an audit trail.
  • For example, skimming involves stealing a company’s cash before the receipts are entered into the accounting ledger. In a sales skim, the fraudster collects a customer’s payment at the point of sale and simply pockets the money without recording it. The loss may come to light only via clues such as inventory shortages or lower-than-expected cash flow.
  • Look at receipts for deposits of both federal and state taxes.
  • Remember that liabilities can double the amount of taxes due, including penalties and interest, within a year, so don’t take more than a few months between your informal audits.
  • Maintain an open-door policy that encourages employees who have suspicions about misappropriations or questionable spending to tell you in confidence.

The Truth About Hotel Safes

This information is top security. When you have read it, destroy yourself. – Herbert Marshall McLuhan

Hotel safes entail keeping your valuables protected through your stay at facilities where this convenience is offered.  But the security of the boxes themselves is not completely fool proof, as there are a number of known vulnerabilities. The vulnerabilities range from physical to logical attacks.  Yet many travelers and even hotel staff are awfully unaware about their susceptibility to the schemes.

One of these schemes is surprisingly simple to pull off. It’s favored by international thieves because they can easily obtain a hotel guess’ name and room number (possibly fake ID); while using elements of social engineering, they simply act as a distressed hotel guess locked out of his/her room and save. Hotel security services always ready to assist a customer and unaware of these sophisticated plots, would comply and open room and safe both.

Other attacks go after the digital safes’ electronic panel, cracking the code if given sufficient time.  It is important to look into the safes UL ratings to weight the risk of storing irreplaceable valuable objects.  These attacks are less commons as the skills required to successfully attack new models becomes less common.

The Historical View

Both hotels and safes have a long history, dating back thousands of years. There are some precursors to the modern safes for instance the Egyptians sought to protect their possessions by burying their scrolls deep in the pyramids; the Assyrians buried duplicates of important documents at separate locations and at the height of the Roman Empire Julius Caesar filed his records in strong, iron boxes. Hotel safes came into existence out of similar concerns when innkeepers sought to protect their patron’s belongings from theft. As far back as the eighteen hundreds lodges and inns where known to advertise safes as part of the security amenities offered to potential clients.  One could say that security is one of the intrinsic benefits included in the lodging industries’ offering since their inception. Since the modern concept of hotels has been modeled after the English and Dutch Inn models many the concepts are imbedded in Common Law. Such is the case of the “duty of a hotel to provide safe premises” from which offering hotel safes branches out from.

Today as in the old days hotels offer safes both to minimize liability and for the peace-of-mind and convenience of guest who often bring valuables into their facilities. The truth of the matter is that these safes are only as secure as the procedure used at any given hotel.  That is because many hotels have a backdoor access into the safe in case the guest forgets the code or loses the key. This fact can create a number of vulnerabilities starting with the fact that hotel staff can be easily deceived as stated above, as well as the fact that they can also be tempted into surreptitiously entering a guest room to steal values in the safe they have indirectly been entrusted with.

As a hotel guest you’re left with limited options as to how to protect your valuables.  Some of the best options are ingenious, but required some knowledge of how the thieves would go about trying to rip you off.   What ever your strategy is remember that your best option is prevention.  It means that you should probably limit the irreplaceable, valuable items you bring with you to a hotel. Also check your travel insurance coverage for some valuable items in case they’re stolen. Lastly heed the security advice offered throughout this site.  A hotel safe is a convenient way to store valuables, but remember the adage about placing all your eggs in one basket.

How To Be The Ultimate Security-Aware Road Warrior

By Francisco Mateo

So you’re a venerable road warrior, but have you mastered the art of staying safe and secure during your international travel? If you want to practice security awareness like the pro’s do, always keep in mind that “the best security protocols are based on common sense and real world experience.” Below are few additional tips to get you ready to protect yourself like the pro’s do:

  • Consult the travel security guidance for your destination from your country’s Foreign Service. Generally it is also a good idea to seek advice regarding extreme climate conditions from reputable weather services.
  • Be aware of the financial and labor issues of your chosen airline as this would impact aircraft maintenance.
  • Scan and make two sets of photocopies of all your identity documents and be mindful of their expiration dates: passport, ID card, driver’s license, vaccination certificates, credit cards, Customs papers for imported material (portable PC, camera, satellite phone, etc.) leave one copy at home and take the other with you.
  • Use luggage that is solid and has a reliable combination lock; airport security approved locks are a good investment.
  • You’re destination country has a reputation for luggage theft shrink wrapping it is a good deterrence.
  • If the risk of loosing your bag is high consider buying Travel Insurance; using a secure identity tag on your bags and don’t pack your bag too tightly.
  • Record the content of your luggage with picture or video to serve as documentation in case it’s lost or stolen.
  • If you need to take confidential/valuable documents or objects (diskettes, money, etc.) on your trip, store them in your carry-on luggage.
  • Some countries reserve the right to scan the contents of your laptop and other portable devices; so if you want your information to remain confidential either encrypt it or take a Clean Laptop with you.
  • Keep your id papers, credit cards, money and tickets on you at all times.
  • It’s good practice to keep a set of extra clothing and footwear in your carry-on luggage.
  • Do not leave your luggage unattended at the airport
  • Never trust an unknown person with your luggage.  A stranger can either steal or manipulate your bag.
  • At the hotel, ask for a room between the second and fifth floor, not overlooking the street (for ease of emergency exit and for protection against bombs)
  • Lock the door fully; use the door-chain or other door safety device.
  • Establish the identity of visitors before opening the door
  • Deposit valuables and documents in the room safe
  • Read the safety instructions and check out the evacuation routes
  • Be CAUTIOUS and observant as to who handles and serves you beverages. Be aware that drinks can be laced with substances such as GHB, a drug that is odorless, colorless and tasteless.   It renders the victim euphoric and susceptible to suggestion.
  • Overall, maintain a low profile. Try to avoid looking like a tourist (e.g. consulting a map in public);
  • Always keep your relatives or emergency contacts aware of your travel itinerary and any changes;
  • Keep your contact list up-to-date;
  • Always keep your mobile phone charged and switched on (make sure you bring a charger and possibly an extra battery)

Remember that these tips amount to a simple philosophy called: maintaining “Situational Awareness”. Practiced often enough and they become habit, which is the state of mind all road warriors should seek to sustain.