HAPPY THANSGIVING from THE EVERYDAY CONTROLLER

Thanksgiving 2013

There is no more beautiful time of year than Autumn.  I love it all……Halloween, college & high school football, the leaves turning, the first hints of winter.  And then there is Thanksgiving.  It is a time of remembrance when we honor our founding fathers.  The pilgrims who landed, the valuable role of our native Americans.  This is a time to wave our beautiful flag, to sing the National anthem, to remember our presidents like Washington & Jefferson.  It is a time to appreciate living in what is still the greatest country on earth.  As Americans, we’ve been arguing a lot.  I know that.  But as the saying goes, ‘what doesn’t kill us, makes us stronger’. Finally, the most important part of remembrance is that we must honor all those who have given their lives in the defense of our freedom, from the American Revolution to the wars in Iraq & Afghanistan.  That is the least we can do.

FRAUD & THE CONTROLLER – PART II

Here’s my Thanksgiving gift to all controllers and consultants.  Yes, it’s about fraud.  A fraud so outrageous that I had to write about it.

Tucked in the bottom corner of the Editorial Page of the Wall Street Journal last week was an article titled ” The ‘Spy’ Who Fooled the EPA”.  If your faith in our government has been diminishing, I’m afraid this might be the final nail in the coffin.

It happened at the Office of Air and Radiation, a division of the EPA.  John C. Beale was a senior official there having spent 23 years of his career there.  Recently, he reached a plea agreement related to the $900,000 in overpayments of a bonus and falsified expenses.  Apparently the fraud started in 1989, even before he was hired.  On his application for employment he stated that he had been employed in the U.S. Senate.  There is no evidence of that being true.  After hiring, he informed his superiors that he was also working as an operative of the CIA.  It only gets better.  Prosecutors contended he had missed almost 2 1/2 years of work from 2000 to 2013 telling his superiors he was essentially gone on ‘secret missions’.  In fact, in 2008 he was gone for six months supposedly on an EPA ‘research’ project.  No leave request was ever submitted.  But, the EPA managed to approve and reimburse him for $57,000 in fraudulent travel expenses.  It gets even better than that.  He also claimed he had contracted malaria while serving in Vietnam.  His prize, an $18,000 handicapped parking spot in downtown Washington D.C.  P.S.: there’s no evidence he ever served in Vietnam.  Nor, any evidence that he had malaria.  For his stellar performance as an employee, he was awarded retention bonuses for six consecutive years.  Just one problem.  The EPA paid those bonuses for 23 consecutive years.  Louisiana Senator David Vitter spearheaded an investigation that led to the facts of the gross overpayments becoming known.  Senator Vitter is pushing for an investigation of the INTERNAL CONTROLS at the EPA.  However, Senator Barbara Boxer, head of the Environment & Public Works committee is resisting.  Why?  The writer states it may be because this is just too embarrassing for the EPA.

I wonder, have you had an employee tell you they would be absent for awhile because they are a CIA operative?  Or working on a secret project for your own company?  What about an employee that asks for time off at a busy time of year because they have personal issues?  And then you find out they needed the time to recover from cosmetic surgery?  Everyone is entitled to time off. It’s just there needs to be a recognition that there are times when they are needed.  Would Santa be giving the elves time off right about now?  The WSJ article is really not about the appropriate times to ask for leave.  Rather, it is about why the government can’t do any better than this protecting our taxpayer dollars?  And, what about all the stealing going on that we don’t know about.

Have a Happy and Safe Thanksgiving to all of you.  See you next Monday.  Part III of FRAUD & THE CONTROLLER.

A VISION THAT DIED 50 YEARS AGO TODAY

It doesn’t really matter whether you were alive or not, loved or hated John F. Kennedy.  What really matters is that today we are honoring a fallen president.  A president who lost his life at such a young age.  For those of us who remember that day it was as if time stood still.  We had just survived the Cuban Missle Crisis, a showdown over Cuba involving the U.S. and Russia.  Those days of October 1963 had been agonizing as we held our breath not knowing if  as a nation we would live or die.

What we lost was more than a president.  His vision for America died with him.  There was much he wanted to do.  When I hear someone asked ‘what makes a good leader’ I rarely hear a response that includes ‘vision’.  Leadership without vision is is nothing more than managing day to day rather than looking ahead.  Steve Jobs was a modern day visionary, although not well liked by his employees and colleagues.  As controllers, vision is an important skill set.  I’m not suggesting you come up with the next big and new gadget but that you constantly are surveilling your surroundings.  Understanding your work environment, especially its vulnerabilities and weaknesses will often reveal what that next step should look like.

Are your leadership skills in need of improvement?

FRAUD & THE CONTROLLER

For CPA’s and audit firms, there’s been a major disagreement going on for years as to whether or not in an audit or review, fraud should be detected.  Most investors have always assumed that it was the accountant’s main objective to discover fraud.  However, determining whether there are material misstatements in the financial statements is not the same thing as detecting fraud.  That said, I believe that a controller has the very clear responsibility to implement controls to prevent fraud.  I can think of nothing worse than to have a major fraud discovered in a company with a controller.  There are exceptions.  Mainly, the one exception I see is if it is fraud by management overriding controls.  That’s difficult for a controller to detect unless they have observed it first hand.

Fraud comes in all shapes and sizes.  Would you believe that churches are repeatedly victims of fraud.  Here are some of the fraud schemes we will look at in the coming weeks.

  • Invoicing Schemes
  • Checkbook schemes
  • Accounts Payable schemes
  • Payroll Schemes (ghost employees)

We’ll also look at ‘Report to the Nations on Occupational Fraud & Abuse’ 2012 Global Fraud Study.  Some of the statistics are actually quite sobering.  Did you know that:

  • 77% of all frauds are committed by personnel in Accounting, Operations, Sales, Executive/Upper Management, Customer Service & Purchasing.  Six departments all who have some degree of control over cash.  And some, more than others.
  •   In the U.S. 43.1% of discovered cases of fraud were through tips.
  • 87% of all occupational fraudsters are first time offenders.
  • Occupational Fraud is a significant threat to small business
  • The median loss was $140,000 with 1/5th involving $1,000,000+.
  • Companies in 2012 with less than 100 employees averaged more in dollar losses ($147,000) than companies with over 10,000 employees ($140,000)

(All of the above taken from ‘Report to the Nations)

After spending several hours the other night researching cases on the FBI website, I can tell you that after a while there is a pattern that emerges that even the non-accountant can easily perceive.  When it comes to their money, too many business owners just had to be asleep at the wheel for some of these frauds to be perpetuated.

If you are working as a controller, the owner(s) of your company has most likely already realized the need for your services.  As a controller, you must keep your eye on much more than accounting, inventory, accounts payable, general ledger and all the other things that demand our time.

In future articles we’ll look at some steps to take to start building a strong foundation of internal controls, especially over cash.

RULE Number ONE on the list.  CROSS TRAINING.  I promise you, most likely you will get resistance.  Use your imagination on this one if you have to.  No bookkeeper in a business should be the only person who can handle the deposits and the disbursements.  Finally, I think the statistic still stands………………one in four employees steal from their companies.  It’s time to pay attention if you haven’t been. 

MY BUSINESS BOOK LIST

I love books.  I inherited that trait from my parents.

In today’s post I am going to talk about some of my favorite business books and why they made my list.  Some of the smartest and forward thinking business people I have known are avid readers.  And, they are willing to share their favorites.  It also shows that you love what you do and have committed to lifelong learning in order to stay current and relevant.

There are thousands of books out  there championing the latest business buzz words.  There’s no harm in reading them, but, there are some good magazines like CFO Magazine that can present them in a much shorter version.

What makes a good business book is a matter of personal opinion.  Some of them do stand out more than others.  So, without further conversation, below are a few of my favorites.

THE CHECKLIST MANIFESTO – Author: Atul Gawande Published: 2009

I’d describe it as thought provoking and insightful.  It’s a fascinating read and never boring.  Dr. Gawande wrote this book while a surgeon at a major hospital.  If you are a list maker, you’ll agree with his premise that checklists are critical in more ways than you might think.  The section on how big buildings are constructed through the management of lists is enlightening and the reader can find many ways to apply these lessons to their own careers.  See how list making can organize and streamline your life a a controller as well as your personal life.

OUTLIERS – Author: Malcolm Gladwell  Published: 2008

Author of ‘The Tipping Point’ and the recently published ‘David & Goliath’ Gladwell gives new meaning to ‘thinking outside the box’.   While the anecdotal stories in each chapter will definitely broaden your thoughts about the subjects presented, it’s really a book about how data can provide proof that our assumptions are questionable at best.  I think the lesson learned is to look beneath the surface, to investigate and open your mind to other possibilities.  I think the accounting regimen we are taught in school is just that, regimented thinking.  As controllers, how can you reorganize or streamline your business, if needed, when you can’t think openly enough to see there is a problem.  You’ll find this a great read and one you won’t soon forget.

DOUBLE ENTRY – Author: Jane Gleeson White Published: 2011

Attention all accountants and accounting students.  This book is for you.  It’s strange that in Accounting 101 or 102 they don’t teach the history of double entry bookkeeping.  ‘Double Entry’ is subtitled ‘How the Merchants of Venice Created Modern Finance’.  It’s a small book but understanding how Luca Pacioli developed debits and credits and two sided entries which must balance provides a foundation for our understanding of how what we practice as accountants was developed.

If you have a budding accounting student you know, this book is for him or her.  I recommend you read it before you wrap it!

MAKING IT ALL WORK – Author: David Allen Published: 01/01/2008

In 2001 David Allen published his best selling book ‘Getting Things Done’.  ‘Making It All Work’ is a follow up to that book and where I discovered the author.

Gone are the days where managers, even top executives, had secretaries or administrative assistants.  They’ve been replaced by laptops, tablets and desktop computing.  There’s no one to hand you a paper phone message, or take dictation, or file your paperwork.  On top of that, all of us have more projects, emergencies, fires, personnel, etc. competing for our time.  It’s all exhausting!  His subtitle is ‘Winning at the Game of Work and the Business of Life’.  Treat this book like a manual that you refer to often as you try to squeeze more time out of your day to be truly productive.

ORGANIZED FOR SUCCESS – Author: Stephanie Winston Published: 2004

Stephanie Winston first became known when she published her ‘The Organized Executive’ over thirty years ago.  Of course, her ‘Organized for Success’ is much more current, it is still nine years old.  I agree, a lot has changed during that time.  However, the bones of the book concentrates on those things that keep us all from being more productive in our daily work life.  I consider ‘The Organized Executive’ and ‘Organized for Success’ a basic primer on how to fill the role of an executive based on how others have succeeded.

I recommend you also treat ‘Organized for Success’ as a manual you will refer to over and over.

You should be able to find all these books on www.amazon.com.  Pick one and dedicate yourself to some personal enrichment drawn from the pages of the books I have recommended.  Good Reading!

Think Like a Consultant! “How to Streamline Your Company from the Inside” – Part IV

In Part I of ‘Think Like a Consultant’ – I outlined the three critical skills you must have.  The ability to OBSERVE, ASK and LISTEN.

It doesn’t matter if you are a new hire a few years out of college or on the cusp of retirement.  If you want to bring true value to your company beyond just getting through the daily grind, you have to raise your head and survey your surroundings.  One of the best ways I know of to do this is to KEEP AN OPEN DOOR and KEEP AN OPEN MIND!  I always welcomed and encouraged feedback from our administrative employees.  Some of the best things we did in my company towards creating greater efficiency was based on recommendations from employees.

A good example of this is an employee who keys in accounts payable all day.  She comes to you and says, I could do this a lot faster if I had a scanner on my desk (or you can fill in the blanks here).  She is a capable and trusted employee who has proved her value over and over.  Therefore, I made sure she had a scanner on her desk that week.  Don’t dismiss out of hand requests from your staff for products they perceive will make their jobs better.  Try your best to do what you can do for them.

In Part II, we presented two common scenarios where the controller fixed the problem at hand but failed to look at the underlying ROOT cause.  You must review the PROCESS and insure it is not flawed.

In Part III, we followed up on the two scenarios presented and looked at suggested policies, procedures and documentation.

Depend on your staff/team to be your eyes and ears so that you have insights you would otherwise not gain into what I call the life cycle of your company.  Show respect for their thoughts and ideas.  But most importantly, ‘Think Like a Consultant’ so that you can keep your company constantly moving towards efficiencies and policies and procedures that help reduce failures in those areas that you are charged with overseeing.

NEXT MONDAY – I’m going to talk about some of my favorite business books and a few I plan to read.  Let me hear from you.  I welcome your thoughts and feedback.

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