Category Archives: Running

Cheating Mysteries

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When I first started running long distance, my goal was to run the New York Marathon. After I completed the Chicago Marathon, things changed a little. Of course I still held my breath every year, hoping to make it into the New York Marathon. But I also had another distant dream – qualifying for the Boston Marathon. It was a distant dream because I would need to run a qualifying time in order to get into Boston and my pace at that time was nowhere near one that would get me into Boston. Over the last few years, my pace has improved and qualifying for Boston has become a more attainable dream. Over the years, I have also come to know more runners and have found that many of us aspire to qualify. I know I am always in awe of a person who has qualified for Boston – it is no mean feat.

With the line of work that I am in, I should not have been surprised, but I was, when I read a recent Runner’s World piece about people who cheat to get into the Boston Marathon. I wanted to run the New York Marathon because I was inspired by the runners who ran past my block, the runners who would touch all five boroughs that make up the city that I call home. I enjoy running races in cities and towns that I have never been to, as I find it a great way to visit and discover new places. When I think about Boston, I don’t necessarily think about running the race itself. The power of Boston, for me and for many that I speak with is in what it takes to qualify. That is the challenge. So, when I read about people who cheated by getting someone else to run a qualifying time in their place, or by cutting a course, I was baffled. Where is the joy in telling someone that you achieved something that you didn’t or that you had someone achieve on your behalf? When I speak with fellow runners, I tend to speak with like-minded people who are just as baffled as I am.

This article reminded me that just because one cannot understand the motivations of a cheater, it does not mean that the cheating will not happen. The fact that many of us cannot understand this motivation is exactly what those that cheat bank on. If no one can imagine how or why someone would fake qualifying for the Boston Marathon, the chances are high that a person will get away with faking in order to qualify for the Boston Marathon. This is something that we all should be mindful of, beyond the realms of the Boston Marathon. Way too often, a business owner or manager will forgo instituting checks and balances in their company, because that business owner can’t imagine that anyone that works for them could be the kind of person that would defraud them.

It is important to take steps to keep from being blindsided by your world view. Precisely because you can’t imagine how a person could behave in a fraudulent manner is why you should seek out the services of a forensic accountant, whose job it is to both imagine how a person could defraud you and how to prevent and detect such actions. We all hope that people will be honest, but it is a sad truth that for various reasons, people will cheat. In the context of the Boston Marathon, perhaps some people feel that they are so close to a qualifying time that a little cheat is not such a bad thing. Maybe some people hunger for praise, even if they have not earned it. Maybe some people just don’t think it is a big deal to cheat in order to get into Boston and see it as a victimless crime. In the context of a business, some people may face personal pressures that they feel push them to fraud. Some people may feel that they are not sufficiently appreciated by their employer and may, therefore, feel justified in taking from that employer. No one is immune from the pressures or motivations that lead to fraud, but what we can do is take steps to make it as difficult as possible to be defrauded.

 

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The Best! The Worst!

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Today is marathon Sunday in New York City and, for years now, I have lived less than a block from the marathon route. It is one of the most exciting days of the year for me and I love walking down to the end of my block to join the over one million spectators who line the 26.2-mile route to cheer on the runners. All too often, New Yorkers are thought of as people who just don’t care about others. Per the stereotype, it’s just keep out of our way, don’t look us in the eye and don’t do anything that will slow us down and we won’t have any problems. Marathon day is a day when I am reminded that the city is a city full of people who do things like come out to cheer and high-five strangers as those strangers test their bodies and spirits. I love it.

There are moments, such as the marathon, that bring out the best in people. Disasters, as sad as they may be, also bring out the best in people. People come out and give time, money and other resources to help those in need. Tragically, disasters also tend to bring out the worst in some people. Some among us see disasters as a great opportunity to take advantage of others, for personal gain. Some of the fraudsters are blatant in their unscrupulous ways because they are targeting the desperate among us. A current example is the migrant crisis in Europe, where refugees, seeking to escape dangers at home, will give up all their resources in the hopes of reaching a safer place. Instead, some hand over money to greedy criminals who then lead them into more danger and, sometimes, even death.

Other fraudsters are more slick in their strategies to profit from the suffering of others. In recent months, natural disasters such as fires and tropical storms, have left many in the United States needing assistance. Just in October, while communities in South Carolina were struggling to recover from flooding damage, warnings were being sent out because of an influx of fake charities. These counterfeit charities, preying on the generosity of those wishing to do something to help the displaced and impacted, were taking people’s money and doing nothing to help those in need. Just a couple of days ago in New York, a company agreed to pay a settlement of $700,000 for pretending to collect secondhand clothing to help charities. Instead, this company sold the clothing, paid almost nothing to the charities and made profits of over $10 million dollars, it is estimated.

Because, even in situations where we should be helping others, there are those who are looking to help themselves at the cost of those around them, it is important to be vigilant.

  • It was Halloween yesterday and parents were checking to make sure that the treats that their kids collected were safe for consumption. Yes, people may appear to be doing good things, but it is only smart to make sure that everything is above-board.
  • Even though it may seem like a drag, check up on who you are giving your money or time to.
  • The name may sound familiar, but make sure it really is who you think it is.
  • If you feel uncomfortable about something, it is okay to say no. There are many opportunities to give back to those in need and you will find the opportunity where you are sure that what you are doing is benefitting those who need it.
  • Don’t give your personal information to anyone.
  • If you believe that you have been scammed, contact your local authorities and report it.

Giving is a vital part of what makes us communities. Just make sure that you are giving to the right people and not the unscrupulous scammers around. You know, like that obnoxious person in the neighborhood who decides that they just have to cross the street as the runners are passing by. Don’t give that guy the time of day.

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While We Are Making Plans

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Because I live in the Northeastern part of the United States, I have become one of those people who lives for the brief summer months. There are only a few brief months of warmth and sunshine (and, often, humidity) in which to have a fun life. There are outdoor shows, there is the beach, there are picnics and that’s just a small sliver of all that needs to be done before the cold and darkness return. In my case, I had also signed up for a half marathon, to be run in the middle of October. Summer was my chance to keep on running and build my endurance and distance. When I run, I run on streets and have to deal with cracks in the sidewalk, people getting in my way and traffic. I am always on the lookout to stay safe and not hurt myself. So, in addition to all the stretching and foam rolling (never enough) that I do in order to prevent injury, on top of all of the careful calibration of distance that I do so that I don’t hurt myself by doing too much too soon, I am also keeping a watchful eye on every step that I take in order to keep myself safe and sound during my run.

Well, on a bright and sunny Sunday morning, at the beginning of August, I stepped out of my apartment building and into the parking lot, armed with a whole lot of recycling to put out. The next thing I knew, I had tripped over something (turned out to be a concrete block) and I was stumbling. The recycling flew out of my hands and the first thought that I had was, “this better not mess with my running”. In an attempt to break my fall, I jammed my leg into the ground and a sharp pain shot up my leg. I crumpled, in my mind, elegantly to the ground. It turns out that for all my measures to protect my body, all it took was taking out the trash in order to fracture my knee. I ended up with my knee in a brace and using a cane (that I still have). Throw in a surgery that I had in September and it turns out that this summer was not the summer I had imagined at all. An acquaintance said to me that life is what happens while we are making plans.

Most people business owners, similarly, spend a lot of time and invest a lot into protecting their businesses from most expected challenges. Depending on the size and complexity of the business, this will range from control systems to detect and prevent fraud and waste, to various reports that business owners and management use to monitor how the business is doing. The question that stands though is, what are business owners and management doing to deal with the unexpected or the events that they hope will never happen? Does the business have a disaster recovery plan? Has the business taken steps to encourage tips that will help uncover weaknesses in control systems and catch fraud and waste? Does the business know what it will do when fraud and waste are uncovered? Yes we make plans and take precautions, but are we ready to deal with what happens when the unexpected happens? Are we ready for, you know, life?

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It’s A Good Hurt

This morning, after my run, I pulled out my yoga mat and foam roller and embarked on my post-run stretches. I am yet to come across a runner who looks forward to the stretching – most of us confess to not stretching enough. And as much as we deplore the stretching we tend to do that more often than the foam rolling. This is because, despite the benign name, the foam roller is an instrument of torture. When I have taken yoga classes, teachers have asked me if I am a runner. They ask this, not because my yoga skills are impressive, but because my leg muscles are so tight that touching my toes is a feat; it’s not a good look. These tight leg muscles are what I target with the foam roller. I am terrible at stretching because stretching after a run is mind-numbing tedium. I am atrocious at using my foam roller after a run because trying to loosen up my tight muscles after a run hurts like hell. However, if I don’t loosen up these muscles, I am setting myself up for injuries and pain that will keep me from running for a lot longer than it takes to suffer through the rolling.

The same is true of many aspects of an entity’s financial system. There are many controls that are recommended by accountants and auditors that may seem like overkill or painfully tedious. However, as I have explained in some of my posts regarding aspects of control systems, such as segregation of duties and double entry accounting, being proactive about creating and maintaining a robust financial control system goes a long way to keeping things from going horribly wrong in the future. I will be the first person to tell you that there are many parts of an accounting system that are not fun. For example, it would be so much easier to have checks come into a company and be dumped on an accountant’s desk and have that one accountant deal with recording the check in the books, depositing the check in the bank and then reconciling the bank statement at the end of the month. Way too many companies opt for the easier path and find many ways to justify their decisions – the accountant has been with them for years, the accountant is such a nice person and totally trustworthy and wouldn’t act in an unethical manner. It’s an easy path until the money is stolen and, more often than not, not recovered. Too many stories of beloved staff members who have turned out to be fraudsters and thieves should show people that a great personality is not an acceptable control measure. Way too many times, we discover that the friendly coworkers are able to perpetuate their crime for a long time because they just seem too good to be crooks.

Record-keeping can seem like such a drag. I mean, what fun is there is debits and credits and keep track of income statements and balance sheets. Oh, and don’t get me started on the headaches that a balance sheet that doesn’t balance can bring. Why would anyone want to keep track of order forms, receipts and other elements of an audit trail? When making an adjustment to the ledger, you know that you will totally remember why you processed the change, even ten years from now. You don’t need to provide backup or keep a record of why you made the change. You wouldn’t believe how often I hear this kind of talk from accountants. Six months later, practically none of them can explain a journal entry that doesn’t have backup and this is for the accountants that have not decided to move on to another company, leaving the person who has taken over their position completely in the dark. Especially since we live in an age when people are not married to one job for life, it is essential that anyone looking at a transaction can find out just about everything there is to know about the transaction without having to employ the services of a forensic accountant.

There are times when I start nodding off just at the thought of the some of the processes I need to go through. Sometimes I think – I don’t really need to check this; the accountant has done this a hundred times, so it is probably okay. But then I think about what might happen if I am incorrect. The thought of how much more I will have to do if I don’t perform the check and then have to clean up the mess afterward pushes me to suck it up and do things correctly the first time. When, on occasion, I find an error, I know that it’s good that I decided to do the right thing. Also, the fact that those in the finance department know that work is being reviewed and being given a look-over by others is a great deterrent to those tempted to engage in nefarious behavior. I also remind myself of this when my own work is being reviewed and my ego has to be reminded that even I can make mistakes and that, in the name of outputting a superior product, the checks on work are not only good but necessary.

Running a business is not all fun, games and glamour. There are times when the physically and mentally painful work must be done in order for the business to succeed and minimize errors and fraud. I groan in pain and have to will myself to remain diligent and not cheat on the foam rolling. The neighbors may wonder what is going on but I know that this is how I can minimize injuries and keep on running happy and healthy. Likewise, though I make less noise (at least, I think I make less noise) about some of the work that I have to do, I know that this is what must be done to keep the company happy and healthy. So, do what hurts – it’s good for you.

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What’s The Problem?

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As my training long runs have become longer, so too has my preparation time for these runs. Yesterday, it took me about an hour to get ready for my 20 mile run. I had various things I needed to do before I could head out:

  • I have an atrocious sense of direction yet, especially when clocking many miles, I like to avoid boredom by running new and different routes on my long runs. So, usually the night before a run, I pull up a run-tracking website and search for routes that others close by have run. I then make notes, with street names and turns, on a small piece of paper. I make the notes in pencil so that, even if the paper gets damp during the run, the notes will not smudge. I map a route that is shorter than the distance I needed to run, giving myself at least a mile in which to get lost, because I get lost very often.
  • I have a banana and a packet of energy gel and wash it all down with some water. It has taken a lot of trial end error (still a work in progress) to figure out what, and when, I can and cannot consume during long runs. I also take some packets of energy gel with me, to take regularly during my run.
  • I cover my body with a fancy version of Vaseline in order to reduce the chances of getting chafed.  I have found that, just when I think I have all my bases covered, a new part of my body is chafed, usually by a new piece of clothing or wet weather. When I first started running, I only needed to treat a small part of my body and it took just a few seconds. Now I am at an almost head-to-toe process.
  • My running gear choices are made based on what protects my body and inspires me. So my clothing serves the dual purpose of being comfortable and cheering me on.
  • I apply sunscreen and check the weather to see whether or not I am going to need a cap to keep the sun out of my eyes.
  • I strap a water bottle to my arm. I also try to map my run so that I run through areas with water fountains so that I can refill my bottle, should I need to.
  • I use my asthma inhaler, put on my headphones and I’m good to go.

One should pay at least this much attention to protecting your financial control systems, and the check ups and improvements should be an ever-evolving process. Part of the process is ascertaining the flaws in the systems and correcting them. There are general rules that serve as guidance, but each entity has its own peculiarities, strengths and weaknesses. For example, though both should have a policy of separation of duties, a company of six people and a finance department of two will determine how they do this very differently from a huge multinational corporation with 500 employees. Though both will have an audit trail, a manufacturer will have documents that look quite different from a consulting firm. Setting up a financial system starts with general rules, such as:

  • The double entry accounting system, of course. The double entry accounting system helps detect errors and fraud in the books. Of course, it is not foolproof, but it is a powerful tool.
  • A written procedure manual is essential. This can be used as a reference so that employees have a checklist for the work they do. It is also helpful to have this manual so that management knows what is currently being done and can review this manual to come up with improvements and revisions to the system. This manual does not have to be a complicated tome that rivals the bible in heft and verbiage. It should be straightforward, unambiguous and easy to understand. The goal is to minimize errors and misstatements in the ledger, not to confuse the users with complex language and instructions.
  • Authorization controls are very important. An example is a requirement that checks over a certain value be signed by more than one account signatory. The reasoning here is that it becomes more difficult for collusion to happen, the more people there are involved in a transaction.
  • Variance analysis of the income statement and review of the balance sheet. Regular analysis of the numbers in the books, how they relate to other accounts in the books and how they trend over time helps highlight anomalies and, at times, spot places where errors are happening or someone is trying to hide fraud.
  • The aforementioned separation of duties. No one person should be in charge of an entire accounting process. The person taking checks to deposit in the bank account, should not be the same person recording the income in the books – that would give the opportunity for checks to disappear without anyone knowing they are missing. The person with physical custody of inventory must not be able to adjust the inventory numbers in the books.
  • Regular audits of the books, both internal and external, should be performed.  A review of the financial information by parties other than those who prepare the information is an important way to check for misstatements and errors. It is a great way to get objective points of view about the character and content of transactions and whether or not they have been properly recorded.

Armed with the general rules, it is then vital to adapt these rules to the entity. A small company does not have the staff or budget for an internal audit department. However, management can decide to occasionally have auditors in to conduct audits of their records and control systems, especially if they have concerns about vulnerabilities or fraudulent activity. A company that decides to go paperless must carefully plan and closely review their new system to ensure a proper audit and authorization trail remains. They should also think about proper data backup plans. It should take more than a small fire in the server room to destroy a company’s records. Even with a small company, separation of duties is possible. A company can be creative with this having, for instance, the receptionist keep a log of checks that are received before they go to the accountant for recording in the ledger.

In the same way that it is with my running, managing and controlling financial systems is an eternal work in progress. As situations, technology and company profile change, so too do the challenges, weaknesses and strengths of the entity’s financial systems. Determining what the issues are is key to finding solutions to resolve them. There may be changes in local, state and federal laws that will require special reports or a different method of recognizing income and expenses. Staffing at a company may grow or shrink and, therefore, the assignment of duties in the company may need to change. This change may be to prevent one person taking over an entire process, which would lead to a lack of review of their work and an increase in the opportunity for fraud. This change may also be to improve a system because a larger staff can lead to more effective separation of duties. There may be software innovations that improve efficiency and staff will need to be trained in how to use this improved software.

It is important to remember that the evolution of a financial system is ongoing and that rules and procedures are not set in stone. To quote Tom Hood, “In a period of rapid change and increasing complexity, the winners are going to be the organizations and people who can learn faster than the rate of change and faster than their competition.” This includes learning how to improve and strengthen the financial systems and their controls. The goal is to always get stronger, more efficient and to prevent injury or disaster, be you running a marathon or running an entity.

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Way Outside The Box

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Shock Absorber

I studied economics in college and in class we learned a lot of theories about things like supply & demand, consumption, and maximizing utility. Those lessons came with graphs and diagrams that were all very logical and pretty to look at. To know that there was an explanation for everything was both exciting and comforting. Learning that a change in the money supply would result in a provable response from the market was a powerful lesson. Everything worked just so, and followed the lines of the diagrams. The power of economics was amazing – all very logical, like a math problem (I also studied math and statistics, so I enjoyed how everything fell in place). It all made sense!

After college, I spent a few years in Zimbabwe and, during that time, I did a stint at an investment bank. I had studied various aspects of economics including micro- and macroeconomics, econometrics and neoclassical theory and so I was ready to step into my analyst position where I took market information and used it to explain and predict market activity. What I found, however, was that sometimes things worked according to the models that I created and the other times the market went rogue. When that happened I was stumped. What was wrong with the people? Why didn’t they act according to the graphs and predictions? Why weren’t they behaving in a logical manner? I wasn’t sure at times, whether to be upset with the people or with the economic theory that didn’t sufficiently warn me about the propensity of people to do what they are not supposed to do.

I left the bank to work in audit, at Deloitte. Just before I started there, an incident had occurred. A client, who was committing fraud, offered the audit manager a bribe to ignore the fraud and issue a clean audit report. When the manager refused to accept the bribe, the client tried to kill the manager. At work, my fellow employees were puzzled by this behavior – for one thing, it would have made more sense to try to bribe the audit partner, as that was who would sign off on the audit report. Was this client’s plan to kill every manager who took over the audit until he found one who was willing to not only take the bribe but also convince the audit partner that the books were fairly stated? It didn’t make sense.

I have found over the years that, unlike most of my mathematics problems, there are many incidents where human behavior does not make sense. A recent example is Scott London, a former senior KPMG partner who, although he earned a seven-figure salary, gave away insider information to his golfing buddy in exchange for a watch and jewelry that he could have bought himself and for about $50,000, cash that was small change in comparison to what he earned. He risked his career, reputation and, possibly, freedom for no good reason.

Why would he do that? It is a question that comes up just about every time a fraud is exposed. We are shocked by the lengths that people go to in order to defraud businesses and what they are willing to risk in their schemes and it is very likely that the fraudsters bank on our unwillingness to believe that anyone could do what they are doing. Often a fraud goes on for a long time because even when someone suspects that something is amiss, they cannot get their minds to go to the place the fraudster occupies. We have preconceived ideas of what a criminal is and so there are many that we don’t suspect:

  • We can’t believe that someone who has been a longtime, respected member of our community could steal from us.
  • We are stunned to discover that a friendly and fun coworker is defrauding the company.
  • In cases such as that of Rita Crundwell, the fraudster is the kind person who helps out when we are in trouble. How could that person be embezzling money?
  • The person fleecing the company could be the person who wins employee of the year awards because they put in long hours, never take vacation time and are always doing more than is expected of them.

At times, in order to see fraudulent behavior, we have to first shrug off our preconceived notions of what kind of person will commit these actions. In this way, we won’t shrug off any red flags or odd moments. Many times after a fraud is uncovered we hear people say things like:

  • He would say things sometimes and I would think maybe I heard him incorrectly;
  • I just assumed she had inherited money from a relative who had passed away;
  • When he started explaining things, he made it sound so complicated that I decided maybe I thought something was wrong because it was too difficult for me to understand.

Humans are odd creatures. We have the power of choice and sometimes that means that a person will make a choice that is absolutely illogical to you. For instance women will wear shoes that break their bones and disfigure their feet and, not only will they wear these shoes, but they will also play hundreds of dollars, sometimes thousands, for these foot-deforming shoes. For many, there is no good reason to destroy your feet in the name of cute shoes but for many others it makes enough sense for them to do it. I know this as a runner who has seen how wrecked we look at the end of a race – bleeding body parts, hobbling, missing toenails – and yet how absolutely triumphant we are. We often don’t make sense.

At times when things pop up that we don’t make sense, we need to be able to keep from thinking that the error is with us. Instead of creating explanations that make sense to us, at times it is important to step outside our boxes and open our minds to the possibility of the unimaginable. If it appears off, it may well actually be off and not be your imagination. It turns out that no one is too smart, too rich or too nice to commit fraud.

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Get It Covered

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I am in and, healthy body permitting, I shall be running the New York Marathon on 3 November this year. As I have now committed to my training, which is very time-consuming and involves a whole lot of running, you may find that a number of my posts will mention running, in addition to financial forensics.

Before I head out on my long weekend run, I pull out a tube of Beljum Budder skin lubricant and apply it to any part of my body that I believe is vulnerable to chafing. Let me explain how chafing, while running long distances, happens. Long distance running involves spending long periods of time, usually hours for those of us who are not elite runners, engaged in repetitive body movements. This means parts of our bodies will, over and over again, rub, either against each other or against the fabric of our clothing.These small actions can end up rubbing layers of skin off our bodies, causing pain and sometimes bleeding. There are two things that lead me to believe that a certain body part is susceptible to chafing: first is that I have received this information from fellow runners and second is that I have been chafed. Yesterday, for example, I got home to find that I had rubbed skin off my arm, where I had strapped a water bottle, and off my back (I am not sure how that happened). As a result, these two areas have been added to the list of what to protect before heading out on my runs. Once I know that a part of my body runs the risk of being chafed, I protect it. I don’t wait to see if it will be chafed again or if the fellow runner was being too cautious. I protect it all. I try to be proactive about preventing the chafe. This is because, even though I tend not to feel it while it is happening, once the running is over, chafing hurts. A lot. It is something I am very motivated to keep from happening.

This is how it should be with your personal and business finances. At the start of when people steal from you, they tend to take a little at a time. They do this on purpose because they don’t want you to notice that they are exploring, exposing and exploiting the weaknesses in your safeguarding system. They don’t want you to notice that they are stealing from you. They want to get away with it and continue stealing. So you should be proactive about protecting your assets. You should follow a two-pronged approach where you take the steps generally advised and also take firm steps whenever you find particular weaknesses in your system. Some pointers to follow are:

  • If you come across a party stealing from you, perform an investigation to discover the extent of the theft and, if need be, hire a financial forensics professional to perform the investigation.
  • Take steps to prevent future theft. This may include pressing charges against the thief or terminating their employment (if they are employee).
  • Assess your control systems to find where there are holes are and close them. In a company small things like the separation of duties, regular reviews of the financials by more than one party and keeping tangible assets under lock and key go a long way toward protecting assets.
  • Conversely, don’t make your accounting system overly complex. The more complex a system is, the fewer people there will be that understand it, giving potential criminal many ways to hide any pilfering of money and assets they may do.
  • Keep an eye out for employees living beyond their means. For example, if you have an employee who earns $30,000 a year but drives a Porsche, it may be smart to investigate whether or not you are the unwitting benefactor.
  • Protecting your personal finances is important as well. Check your bank and credit card accounts regularly, at least on a weekly basis. I don’t know of a bank that does not offer online access to its customers, so take advantage of it and stay on top of what is going on in your account. If you see a transaction that looks unfamiliar, look into to and call your bank if need be. That’s your money so don’t be shy about making sure you have authorized withdrawals.
  • If you are an individual with complicated or substantial assets, it makes sense to seek the advice and services of a financial professional.

Protect yourself. Take the steps to strengthen the systems you have to keep your assets safe and, whenever you find vulnerabilities, take extra proactive steps. You do not want to find a big gaping hole in your finances. I am guessing that, in the same way chafing does, that big old hole will hurt. A lot.

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