Business owners get advice on avoiding corporate fraud | Maryland Gazette (HometownGlenBurnie.com)

But corporate fraud is increasing here as recent incidents involving hundreds of thousands of dollars surfaced at the Maryland Retailers Association and the O'Callaghan Hotel in Annapolis.

Kristin Fleckenstein, spokesman for the State's Attorney's Office, said her office doesn't keep specific stats on county business fraud cases, but "it is a type of crime that we have seen an increase in." Just a few years ago, her office had one prosecutor assigned to economic crimes, and now there are four, she said.

Before county business owners at Morton's Steakhouse in the Park Place complex last week, Joel Charkatz, chairman of the business valuation and litigation support group of accounting firm KAWG&F, offered tips for preventing fraud.

"I don't care whether you're General Motors or IBM or the corner drug store, it is a problem everywhere," said Mr. Charkatz whose firm has an Annapolis office.

Corporate fraud happens when access meets opportunity, he said. People who handle bookkeeping or the company credit card have that access, he said.

Access, coupled with "pressures" - problems with debts, drugs and gambling - can lead employees and employers to commit fraud, he said.

All companies can be the victim of fraud. But small businesses are particularly vulnerable because they often lack the personnel or resources for tight internal controls, he said.

To that end, small businesses should have some layer of oversight on employees who handle bookkeeping and cash and check payments.

"There's all of this invested in that one person," Mr. Charkatz said. "If there are pressures, if there are problems, this individual may look to this opportunity and take advantage of it."

Senior-level employees seem the least likely to fudge figures and forge checks. But often, employees with the longest tenures who "have earned the trust of management" are committing fraud, Mr. Charkatz said.

It may be a person who has worked at a company for 15 years and been over to your house every July 4th, leading employers to think, 'I don't have to worry about Sally,' he said.

"That's not necessarily true," he said.

It goes without saying, but treat your employees well, he said.

Firms that treat their work forces poorly, or have been known to pay personal expenses through the company, can open a business up to fraud, he said.

"That's the tone at the top and that filters down throughout the organization," Mr. Charkatz said.

Unexplained cash discrepancies, altered deposit slips and delays in customer payments also are major warning signs of fraud.

"You need to ask yourself, "Should I look a little deeper?' " he said.

Most businesses know what their collection ratio should be based on billings and revenue, he said.

But larger write-offs could be a sign of dishonesty.

"If you hired a new bartender and you start to see your gross profit in the bar go down, it's time to at least look," he said. "It may be very legitimately explainable."

Watch out for company employees who look as if they are living beyond their means. If you notice your cash flow is low, and your bookkeeper who makes $32,000 a year pulls up with a shiny Porsche or Lexus, that person may be stealing, Mr. Charkatz said.

Several representatives from local businesses declined to be interviewed about corporate fraud.

Kent Drinker, vice president of membership for the Annapolis and Anne Arundel County Chamber of Commerce, said business owners may be reluctant to speak about corporate fraud because it's "not a good marketing tool."

"I don't think any business wants to talk about fraud," he said.

However, Mr. Drinker said he would like to see more seminars that cover the problem of corporate fraud.

The weakened economy "opens up a lot of businesses to risk in certain areas," he said.