CREJ

Page 16 —

COLORADO REAL ESTATE JOURNAL

— December 7-December 20, 2016

Law & Accounting

our bookkeeper or

internal

accountant

has been with you for

years. He is the most trustwor-

thy person in your organization

and you would never suspect

him of doing anything dishon-

est. Chances are you are correct

in your belief. However, all too

many times in cases of fraud,

it is discovered that one of the

most trusted employees has been

skimming a little extra money

each month and has never been

caught. You will certainly catch

wire transfers that look odd. You

have multiple approval levels.

You require two check signers.

However, there are a lot of small

payments and perhaps recurring

credit card charges that add up

to big dollars over the year. As

financial service professionals,

we have seen many instances

where a trusted controller or

financial person has lined his

own pockets without an owner

suspecting anything. Here are

two simple things that all busi-

ness owners can do in 10 minutes

or less to protect their businesses

and put a second set of eyes

on cash disbursements that roll

through the business.

The unorthodox cash dis-

bursements review.

When a

company makes multiple dis-

bursements throughout the year,

it is difficult to catch duplicate

payments, unusual amounts or

errors. These irregularities can be

identified in a 30,000-foot view

of disbursements at the end of

the year. This is by far the easiest

and most effective review pro-

cedure any business owner can

do – especially if he is not in

the details every day or uses a

property manager to handle the

accounting for his building. We

do this procedure for business

owners on all of our audits, and

our clients always are shocked

and surprised by what they see.

They are not shocked because

they immediately see fraud or

errors, but they’re taken aback

because they did not realize how

much they pay certain vendors

over the course of the year. The

added benefit and value of this

internal control procedure is that

it gives an owner a 30,000-foot

view of the business spending

as well.

To do this simple review, have

your accountant download all

your disbursements, including

check registers, ACH payments

and

credit

card activity

(if you're one

of those peo-

ple who likes

to accumu-

late miles and

points) into an

Excel file.

First, sort

the disburse-

ments alpha-

b e t i c a l l y

by vendor.

Depend i ng

on the size of

your business,

this may seem like an unwieldy

task, but if you own a commer-

cial property or hotel, you will be

surprised how short the list actu-

ally is once payroll is excluded.

Now scan the result; my guess is

you will find more than one item

that gives you pause and causes

you to request backup. If for

some reason you do find the list

too cumbersome, simply subtotal

the disbursements by vendor so

it’s more manageable. You will

lose some of the granularity that

helps identify potential errors

and duplicate payments, but

you may still identify unauthor-

ized vendors or inappropriate

amounts of spend for a vendor.

Second, add a tab and sort the

disbursements in dollar-descend-

ing order by disbursement and

make sure your largest disburse-

ments are actually to the ven-

dors you expect to see on the

list. Many times business owners

will sign checks all year long

but never step back to aggregate

and accumulate the total dollar

value spent with a particular ven-

dor. This unconventional view

of disbursements will provide a

gut check on where your dollars

are being spent. It doesn’t matter

where in the general ledger these

disbursements are being coded

to; that is accounting. Right now

we are just talking about cash.

Cash is king and where is your

cash going? It is very powerful to

see your total spend by vendor

in aggregate. What seemed like a

small recurring charge can build

up when you have multiple

properties and seeing the total

spend in aggregate may give you

more negotiating power.

This procedure is particularly

important if you use credit cards

or other auto bill pay platforms

in the age of subscription-based

service models. Most companies

have several layers of review and

approval for checks above $5,000,

but what if you have a $400 or

$800 monthly recurring charge?

Would you notice? Recurring

charges are really the same as

writing a vendor a $5,000 or

$1,000 check. Seeing aggregate

spend is powerful for both fraud

and error detection as well as

evaluating your overall business

spend.

The seepage of cash

through credit card returns.

Taking credit cards is the norm;

it’s easy and a perfectly accept-

able form of payment. Credit

card receipts accelerate cash flow

and they are easy for the cus-

tomer. Although we all grumble

over the fees associated with tak-

ing credit cards, timely collec-

tion of cash is generally better

than the fees we paid to the pro-

cessors. Credit card processing

traffic, however, is a two-way

street. Payments are processed

and outstanding accounts receiv-

able are collected, but refunds via

credit cards also are occasionally

processed as well. Every time a

deposit is processed, there also

is an opportunity for someone

on your accounting staff to pro-

cess a refund. A growing area of

fraud is unauthorized refunds

being applied to an accounting

staff’s personal credit card. In

essence, you could be paying

for someone’s personal credit

card use when he processes an

unauthorized refund on his own

personal card. Credit card com-

panies are developing software

to track refunds and send alerts

regarding suspicious activity,

but it’s also relatively easy pro-

cedure for a property owner to

get the statements fromyour pro-

cessor for the year and quickly

scan to see what refunds, if any,

were processed by your termi-

nal. We encourage all business

owners to take five minutes to

scan their credit card statements

and review for refunds or other

unusual activity.

These two procedures above

seem very simple and basic. It

might actually be the one of the

most powerful 10 minutes you

can invest in your business. And

if your accountant or controller is

unable to run a simple disburse-

ments listing or annual credit

card activity statement in Excel,

perhaps that’s also symptomatic

of something you should investi-

gate further.

Two 10-minute year-end fraud procedures for all business owners

Stacey Hekkert,

CPA

President and

managing partner,

Anton Collins Mitchell

LLP, Denver

370 17th Street, Suite 4800 | Denver, Colorado 80202

303.825.0800

| bw-legal.com

James L. Kurtz-Phelan - Real Estate Practice Chair

Real

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Attorneys

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Our national real estate practice

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needs of clients.

We advise on current positions,

opportunities, and complex

transactions in:

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Phoenix | Salt Lake City | San Diego | Washington, DC | Wilmington

| www.ballardspahr.com

For more information, please call

Beverly Quail at 303.292.2400

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