Keep fraud off your restaurant’s menu

In the restaurant industry, where long hours and thin profit margins are the norm, owners and managers often lack the time and resources to focus on fraud. Unfortunately, restaurants can provide crooked employees, customers and vendors with plenty of opportunities to steal. So you need to be able to recognize fraud threats — and nip them in the bud before they lead to heavy financial losses.

Opportunity on the house

Many restaurants have high transaction volumes but lack the technology linking point-of-sale, inventory and accounting systems. This leaves gaps for fraudsters to exploit. Employees could, for example, provide food and drinks to friends without entering the sales — or ring up only a portion of friends’ bills. They might issue voids or refunds when there was no original sale and pocket the proceeds. Or they could overcharge customers by, say, charging for premium beverages but serving cheaper alternatives.

Although it’s less common, intangible property theft is another risk. Your restaurant may use proprietary recipes and confidential marketing plans to compete in the dog-eat-dog world of food service. If a departing employee takes such secrets to a rival, it could threaten your restaurant’s survival.

Back-office book cooking

Owners often employ bookkeepers to manage back-office operations but may neglect to give proper oversight. Such an environment provides criminals — or even ordinary people experiencing unusual financial pressures — with opportunities to cook the books. In one frequently seen scheme, the bookkeeper creates a fake vendor account, submits and approves fraudulent invoices, then directs payments to a bank account he or she controls.

Even when bookkeepers are honest, the invoices they process may not be. It can be hard for managers to keep track of the daily stream of food, beverage and supply deliveries. Vendors might exploit such chaos by inflating their bills to reflect more or pricier items than they actually delivered. When vendors collude with restaurant employees, particularly receiving or accounting staff, theft can exact a heavy financial toll.

Ingredients for success

Successfully combatting restaurant fraud takes a multipronged approach. If you haven’t already:

  • Integrate your accounting, inventory and sales systems,
  • Use loss prevention technology to detect suspicious transactions such as excessive voids,
  • Process credit cards with EMV (chip) readers,
  • Conduct background checks on new hires,
  • Train supervisors to recognize red flags,
  • Set up a confidential fraud reporting hotline, and
  • Install video surveillance throughout your restaurant.

Also engage a CPA to review your financial records at least once a year for errors and discrepancies, and consider having this outside expert conduct occasional surprise audits. Contact us for assistance.
© 2019

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Preventing fraud in auto dealerships

To prevent occupational fraud from cutting into your auto dealership’s profits and generating negative publicity, you need a strong internal controls system. And effective controls start with current and accurate financial statements.

It starts in accounting

One sign of weak internal controls is an accounting department that fails to generate a balance sheet and income statement until two or more weeks after month’s end. Accounting should post transactions daily, including new and used vehicle sales, repair orders, invoice payments, payroll and cash receipts.

By 1 p.m. on any given day, you should have access to real-time checkbook balances and other accounting information effective as of 5 p.m. the day before. That way, you might be able to catch the first signs of fraud and use the data to catch the perpetrator.

Tried and true methods

Complex computer passwords, background checks and security cameras are essential to preventing fraud. But sometimes these protections fall by the wayside. Periodically review your safeguards and ensure they’re being used. For example, require employees to change their passwords quarterly, conduct regular inventory counts, engage outside CPAs to perform audits and segregate accounting duties.

As a rule of thumb, employees who record and reconcile transactions should never have access to those assets (including being a signer on bank accounts). Give the segregation of duties a starring role in your internal controls program.

Real life examples

To see how such controls can reduce losses, consider this real-life scam. A parts manager stole $70,000 by selling his employer’s parts and pocketing the cash. The loss could have been reduced if the owner had performed random inventory counts throughout the year, rather than waiting for his CPA to physically verify inventories at year end.

In another case, a dealership caught its cashier stealing by voiding service orders and falsifying deposit slips. The cashier’s responsibilities included collecting cash, issuing receipts to customers, preparing the daily deposit slip and reconciling the daily cash report. A loss of $16,000 might have been prevented if the dealership had segregated these duties.

Another dealer learned that his general manager was wholesaling used cars at a loss to the dealership because he owned a 50% interest in the wholesaler. A better pre-employment screening process might have helped detect such conflicts of interest as well as any criminal history.

Be involved

We can help you bolster your dealership’s internal controls. But your involvement is essential to preventing fraud. Let employees know that you personally review bank statements, order test counts of inventory and examine adjusted journal entries. Knowing that you’re paying attention will discourage most thieves.

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The IRS has issued final regulations on charitable contributions and state and local tax (SALT) credits. The regs require taxpayers to reduce their charitable contribution deductions by the amount of any SALT credits they receive or expect to receive in return. This allows some taxpayers to deduct certain payments as taxes. The IRS also has issued a safe harbor that allows individuals, in some circumstances, to deduct disallowed charitable contributions as state or local taxes. Treasury Decision 9864, available in the June 11 Federal Register, finalizes proposed regs published August 27, 2018.

This is good news for Arizona’s state credit programs like the ones for contributions to Public School Extracurricular Activities, Foster Care Organizations, Qualified Charitable Organizations, and Arizona Private School Tuition Organizations! The safe harbor allowing individuals to deduct the disallowed charitable contribution as state or local tax will eliminate the negative impact some Arizona taxpayers would have experienced under the originally proposed reg.

For more information and a list of some of our recommended Yuma-area, credit-eligible organizations, click here: http://bit.ly/2F2xSrd

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Uncover bogus resumé claims — and prevent bad hires

Job applicants aren’t always honest on their resumés. And if you don’t investigate suspicious claims, you might end up hiring an unqualified and unethical employee — which could lead to financial, productivity and legal liability issues. The resumé fibber might also be more likely to commit occupational fraud.

Here’s how to unearth the three most common resumé falsifications.

1. Deceptive dates

Whether to gloss over a termination, a period of job hopping or time spent out of the workforce, some job seekers “adjust” dates to make their employment history seem more consistent. Look closely at resumés that state employment dates in years, not months. Say an applicant claims she worked at her last job between 2017 and 2018. Her tenure may only have lasted two months — December 2017 until January 2018 — instead of the implied two years.

Confirm an applicant’s precise employment dates with all previous employers. Also make sure that candidates complete your entire job application, informing them that, although a resumé isn’t a legal document, a job application is. Lying on it is cause for immediate dismissal.

2. Fake degrees and shifting majors

Workers applying for a position that requires a specific degree are more likely to lie about their education than other applicants are. If a resumé lists an unfamiliar school, or coursework and years but no degree, dig deeper. A school you’ve never heard of could be a diploma mill. A resumé that simply lists Chemistry, State College, 2002, may indicate that the job seeker completed classes in that subject but didn’t actually receive a degree.

Always check applicants’ educational claims by contacting the degree-granting institution. If you’re suspicious of a school, verify its accreditation with the U.S. Department of Education.

3. Embellished titles, skills and accomplishments

Everyone tries to look their best on a resumé. Some, however, embellish their experience, titles, skill proficiencies or grade point averages with outright lies. There’s no such thing as a perfect job candidate: You may want to flag any resumé that exactly matches all of a position’s qualifications.

You should contact all personal references and speak with previous supervisors or HR staffers, not peers, to confirm titles and job responsibilities. To elicit the best information, ask open-ended questions, followed by more probing, detailed ones. But be aware that some past employers will give only limited information, such as dates of employment.

Time and money well spent

If you’re quickly checking resumés and conducting interviews, you’re less likely to separate the candidates with real potential from those sporting fake credentials. If time is scarce, outsource this process. It’s money well spent if you can save your company from public embarrassment, legal woes or financial losses due to fraud.

© 2019

How to spot influencer fraud

To increase brand awareness and influence consumer behavior, businesses of all sizes spend vast amounts on social media marketing. Social media “influencers” can help companies reach and engage customers. But not all influencers operate above board. Here’s how to avoid hiring or associating with a dishonest influencer.

The more, the better

There’s no commonly accepted definition of how many followers an influencer must have to claim such status. But in general, the more, the better. After all, clients want access to as many eyes as possible.

Knowing how important followers, likes and shares are, some influencers find it hard to resist the temptation to inflate their numbers. In general, they can command higher fees and attract bigger brands if their social media accounts appear to be hubs of activity.

Red flags

Fortunately, there are several red flags associated with influencer fraud. Pay attention to influencers that seem to have many followers with skimpy accounts. When you click on them, the accounts may lack bios and other personal details. These accounts may also have few followers and accounts that they follow (other than, of course, that of your influencer). In other words, the accounts don’t look authentic. In such cases, the influencer may have purchased or created followers.

Another potentially suspicious sign is that the influencer’s comments, likes, and shares exceed expectations. Higher than expected levels of engagement may sound like a good thing. However, it may also indicate that the influencer arranged for engagement via a “bot farm.” This automated application can be used to make accounts look more popular than they actually are. Or, the influencer may participate in communities of influencers with reciprocal agreements to like and share each other’s posts.

Check before you commit

Before you enter an agreement with an influencer, scrutinize the service provider’s social media accounts and activity. Also call business references to learn if the influencer’s claims about engagement results are accurate — or exaggerated. If you don’t feel comfortable with what you find, look elsewhere.

© 2019

Antifraud checklist for construction companies

According to the Association of Certified Fraud Examiners’ Report to the Nations: 2018 Global Study on Occupational Fraud and Abuse, organizations victimized by fraud lose a median $130,000. But construction companies, in particular, are even harder hit, with a median loss of $227,000. What can you do to protect your construction business? Adopt this checklist.

Ways to tighten controls

An effective strategy for minimizing fraud is to tighten your internal controls. Make sure the following are part of your policies and procedures:

Surprise audits and jobsite visits. These visits can not only help detect fraud, but also send a strong message that combating fraud is a priority — which is a powerful deterrent.

Segregation of duties. Avoid situations in which one person handles multiple financial or accounting tasks. For example, the person who processes cash transactions shouldn’t also prepare the company’s bank deposits.

Bank statements. Have monthly bank statements sent to you or a manager independent of the accounting function. Canceled checks should be reviewed for unfamiliar payees and forged signatures.

Purchase monitoring. Name someone other than the purchasing agent — you or an estimator, for instance — to review vendor invoices, purchase orders and other documents. Use prenumbered purchase orders. Physically check materials and supplies to ensure they correspond to what was ordered in terms of quantity and quality.

Kickbacks and bid-rigging. If your company is suddenly winning bids that you haven’t in the past and that seem like a stretch, verify that your bid processes have been followed. Sometimes employees disguise illegal activities as change orders, so be sure to scrutinize each change order.

Budget analysis. Prepare annual budgets — for your company and each job — and regularly compare actual results to budgets. Scrutinize large or unanticipated discrepancies.

Payroll practices. Have someone independent of your accounting department verify the names and pay rates on your payroll. If you don’t already, pay employees using direct deposit, rather than with checks or cash.

Vacation policy. Require full-time employees to take time off every year. Fraud is often exposed when the perpetrator isn’t there to cover it up.

Many benefits

These are just some of the many internal controls contractors should implement to protect their businesses. In addition to preventing and revealing fraud, solid internal controls can help avoid accounting errors, reduce waste and boost cash flow by making billing, purchasing and other processes more efficient. Contact us for more information.

© 2019

Plug in tax savings for electric vehicles

While the number of plug-in electric vehicles (EVs) is still small compared with other cars on the road, it’s growing — especially in certain parts of the country. If you’re interested in purchasing an electric or hybrid vehicle, you may be eligible for a federal income tax credit of up to $7,500. (Depending on where you live, there may also be state tax breaks and other incentives.)

However, the federal tax credit is subject to a complex phaseout rule that may reduce or eliminate the tax break based on how many sales are made by a given manufacturer. The vehicles of two manufacturers have already begun to be phased out, which means they now qualify for only a partial tax credit.

Tax credit basics

You can claim the federal tax credit for buying a qualifying new (not used) plug-in EV. The credit can be worth up to $7,500. There are no income restrictions, so even wealthy people can qualify.

A qualifying vehicle can be either fully electric or a plug-in electric-gasoline hybrid. In addition, the vehicle must be purchased rather than leased, because the credit for a leased vehicle belongs to the manufacturer.

The credit equals $2,500 for a vehicle powered by a four-kilowatt-hour battery, with an additional $417 for each kilowatt hour of battery capacity beyond four hours. The maximum credit is $7,500. Buyers of qualifying vehicles can rely on the manufacturer’s or distributor’s certification of the allowable credit amount.

How the phaseout rule works

The credit begins phasing out for a manufacturer over four calendar quarters once it sells more than 200,000 qualifying vehicles for use in the United States. The IRS recently announced that GM had sold more than 200,000 qualifying vehicles through the fourth quarter of 2018. So, the phaseout rule has been triggered for GM vehicles, as of April 1, 2019. The credit for GM vehicles purchased between April 1, 2019, and September 30, 2019, is reduced to 50% of the otherwise allowable amount. For GM vehicles purchased between October 1, 2019, and March 31, 2020, the credit is reduced to 25% of the otherwise allowable amount. No credit will be allowed for GM vehicles purchased after March 31, 2020.

The IRS previously announced that Tesla had sold more than 200,000 qualifying vehicles through the third quarter of 2018. So, the phaseout rule was triggered for Tesla vehicles, effective as of January 1, 2019. The credit for Tesla vehicles purchased between January 1, 2019, and June 30, 2019, is reduced to 50% of the otherwise allowable amount. For Tesla vehicles purchased between July 1, 2019, and December 31, 2019, the credit is reduced to 25% of the otherwise allowable amount. No credit will be allowed for Tesla vehicles purchased after December 31, 2019.

Powering forward

Despite the phaseout kicking in for GM and Tesla vehicles, there are still many other EVs on the market if you’re interested in purchasing one. For an index of manufacturers and credit amounts, visit this IRS Web page:   target=”_blank”>https://bit.ly/2vqC8vM. Contact us if you want more information about the tax breaks that may be available for these vehicles.

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