About 50 miles northeast of Atlanta, GA is a fast-growing county. Property developers salivate and heave projects at the Hall County, GA Board of Commissioners, for approval. Gainesville, GA is the county seat. Cities such as Oakwood, Braselton and Flowery Branch are visited by attorneys at public meetings. They present and answer questions about various construction proposals.
New businesses have found homes in the Gainesville area. Existing ones relocate or look for more space due to the economic surge. Labor stress concerns everyone. A lack of housing arguably fuels the labor shortage, thus the acceleration of residential building.
The topic of business loss in the flourishing area, seems like a contradiction. One point of view says, if all the infrastructure were in place with an abundance of labor, even more business could be had. Thus, how much business loss is really occurring? How much more could be achieved or realized? In the macro, that point of view could be applied to any area with similar circumstances.
However, there is a true, tangible type of business loss that has often occurred in the Gainesville area. It’s spoken with embarrassing brevity, or mentioned in an occasional news story. Citizens shake their heads in wonder. Some business owners’ smirk at the headlines or secretly wonder if they could be next. Larger corporations may feel they’re mostly immune or won’t experience a terrible disruption. Not long after the shock, it’s quickly forgotten.
The disturbing stories are that of occupational fraud. Occupational fraud is the technical, professional term used to describe asset misappropriation, financial statement fraud, bribery and corruption. In short, an employee or employees, steals from their employer. In Hall County, a number of businesses over the last several years have suffered.
In one incident, the local sheriff’s office attempted to execute an arrest warrant. The arrest warrant was issued after an investigation revealed, a large amount of money was embezzled from a local business. As deputies arrived at the employees’ home, they knocked on the door – and kept knocking. Moments later, they heard a gunshot. Other examples in Gainesville, show gloomy jail booking photos with excerpts describing criminal charges against a bookkeeper or other person of trust.
The damages from the fraud? We’re not talking a few hundred dollars. In many cases it’s hundreds of thousands of dollars. Approximately one of every five occupational frauds exceeds $1M or more, according to the Association of Certified Fraud Examiners (ACFE). Another story in itself, involves cases where human life is impacted due to fraud. Think about the outright closure of a business. No matter how much civil restitution is ordered, it’s doubtful the funds will ever return to the victim organizations. It couldn’t be repaid in two lifetimes.
Simply put, the offender is normally a lone employee with too much financial control and little oversight. Eventually, the fraud spirals and consumes those committing the act. Afterwards, co-workers say they observed certain behaviors that later made sense. However, the dynamics of what leads to the fraud are often multi-faceted. A closer dissection is called for.
When any organization loses large amounts of money or assets to theft, it leaves a direct negative effect on the local community and overall economy. It’s money that will never reach an employee’s benefit package. Money that will never be reinvested, used for growth, improvements or salary increases.
The water quality is good in Hall County, so no problem there. The scenic north Georgia mountains are in the background with crepe myrtles around corporate landscapes. A fair question asks, is the seemingly high number of occupational fraud cases any more in the area, than in other communities? While too difficult to determine, consider the incidents that are never reported or never make the headlines. Too many victims are too embarrassed or fear bad publicity, so the actual numbers will never be known.
A better question is, what steps to prevent fraud can be taken, or will be taken? A private investigator in Flowery Branch, GA speaks to local groups on the subject. He tries to explain the elements normally present for fraud to occur and how organizations can better protect themselves. Many when hearing the speaker, nod their heads as they identify with their own workplace incident. Others with dilated pupils, drop their jaw at the audacity of offenders.
Some say it gives the private investigator good job security but he quickly clarifies. “A preventative approach would be better. Once the fraud has occurred, normally the first person called by a small business, is their attorney, CPA or at times law enforcement. Other organizations may handle the matter internally, file a civil action or simply absorb the loss without any reporting at all. Further, CPAs do very important work but normally aren’t looking for fraud.” When the private investigator, who is also a Certified Fraud Examiner (CFE) makes the last statement, audiences look puzzled.
The CFE explains that CPAs can and do find fraud. Further, if a CPA brings up some anomaly they’ve discovered in the review of your financials, don’t be so quick to dismiss it. However, CPAs are normally not engaged to discover internal fraud. Even when the “non-fraud finding scope of work” is spelled out in an agreement, business owners may unfairly blame the CPA for not discovering an embezzlement.
What the CFE speaks primarily about, is the need for preemptive fraud risk assessments. The assessments take a comprehensive look at an organization and their vulnerability. Internal controls are certainly examined but the assessments go further. A very holistic approach is taken, blended with a number of tactics and technical recommendations. Then, there is the response component. For example, the average occupational fraud extends 18 months or longer before detection. Others, 24 months or longer. So, does the organization have defensive tools for earlier detection?
It’s normal after speaking to a group, the CFE is approached by an audience member, who says, “I wish I had known you.” The member recalls a tale of violation by a trusted employee and the after-carnage results. The CFE responds with an important question. “Had you previously been approached about having a preemptive fraud risk assessment, would you have done so?” The responses are very telling.
In reality, the answer to the question is no. No one believes it will happen to them. It’s an event that happens to others. In Gainesville, GA and so many others like it, business loss due to occupational fraud seems recurring. The CFE says it’s preventable and organizations don’t have to be a victim. An important decision is having a third-party assessment and maybe gunshots will not be in your future.