The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A top accountant is aiming to “speed up” the sophistication of anti-fraud measures adopted by Bahamian businesses, as the average 5 per cent revenue loss threatens to “wipe out” many companies.

Kendrick Christie, president of the Association of Certified Fraud Examiners (ACFE) examiners’ Bahamas Chapter, told Tribune Business they were increasingly pushing small businesses to use online banking and employee screening as fraud countermeasures.

“Bahamian companies are becoming more sophisticated, but we want to speed that up, the investment they’re making in fraud controls,” Mr Christie, a Grant Thornton (Bahamas) accountant and partner, told Tribune Business.

Bahamian firms, he added, generally fell into line with the worldwide average of losing 5 per cent of annual revenues to fraud.

Given that this nation has an estimated $8 billion per annum gross domestic product (GDP), this implies that businesses are collectively losing around $400 million to internal theft and other types of white collar crime.

Focusing on small businesses, typically companies with five to 10 employees or less, Mr Christie said they were especially vulnerable due to cost and resource factors.

He added: “The owner plays a big role, doing a lot of activity to sell and market the company, and he falls behind on monitoring the accounts and paperwork.”

The potential for fraud in his situation, Mr Christie said, was exacerbated by the ‘trust factor’. Business owners in these situations frequently failed to review the work of employees they felt they could trust, creating the opportunity for loss.

Disclosing that he had seen several such situations, the ACFE chapter president added: “The average time to detect something is happening is 18 months. When you’re talking about an average of 5 per cent of revenues [being lost to fraud], that can wipe a business out. There’s no coming back.

“Gas stations, the margins are very low, so if you suffer some type of loss due to fraud, you can go out of business.”

Mr Christie said many companies had switched to online banking, as this meant they could see what was happening to their finances and cash flow more frequently.

He explained that this would also enable them to detect any fraud more quickly, reducing the potential for loss, as business owners were no longer restricted to waiting for their monthly bank statement.

“Cash can be taken before it hits the bank account, but monitoring it online, you can control your business,” Mr Christie said.

He added that ACFE members had seen the “lapping of cash”, where monies taken on either the previous or subsequent day were used to fill ‘holes’ created by dishonest employees.

“You’re always short, but they’re making it appear as if the cash is there,” Mr Christie added.

There had also been an “uptick” in companies not accepting payment in US dollars due to the level of counterfeit cash in circulation, and the ACFE chapter president said: “I expect we’re going to see more issues around credit card fraud in the Bahamas in the not too distant future.”

Failure to monitor inventory regularly is also leaving Bahamian companies exposed to stock pilferage. Mr Christie said he had seen schemes where employees sold several pieces of the same equipment, and accepted payment for some “on the outside”.

“I have heard stories of that being very prominent, and have wondered how businesses can survive, as inventory is short at some time,” he added. “Owners are not as meticulous as they should be.”

Mr Christie blamed the ‘cell phone culture’ and declining employee attitudes for why many businesses were exposed to counterfeit payments, with staff often distracted and failing to properly check the authenticity of bank notes.

“Employees need to have rules and regulations around the use of cell phones in the workplace,” he added.

Mr Christie said that while internal theft might be blamed by some on the tough economy, it was “also due to bad hiring and monitoring on the part of business owners.

“The message to employees is training and having a stake in the business. They need to realise the importance of having a job, and if they see something amiss, report it. Sit down with your employees and tell them how it is. I need you employees to help me.”

Mr Christie said Bahamian culture, set in a small society where everyone knew everyone else and with multiple family connections, seemed to work against employee ‘tips’ to their employers regarding dishonest actions by their colleagues.

“We see a culture where it’s a no-no to point someone out or report someone to their employer,” he told Tribune Business. “I don’t think we’re going to see a change any time soon, as it seems to be very hard to get persons to report it.”

Mr Christie said the best way to prevent employee theft/fraud was to let them know there was a strong chance such offences will be detected, via accounting procedures and cameras. And if they were caught, prosecution via the courts will follow.

The ACFE’s 2012 Report to the Nations on Occupational Fraud and Abuse,. which draws from 94 countries on fraud and abuse cases, found that “occupational fraud is a significant threat to small businesses around the world, including The Bahamas”.

The smallest organisations in the study suffered the greatest median losses. They generally sustain fraud losses due to the misappropriation of inventory and the use of counterfeit cash.

To combat this, Mr Christie said small businesses should consider:

1) Having and reviewing online bank accounts daily.

2) Having a stand-alone computer for banking and business transactions (no email, web surfing).

3) Knowing the relevant law enforcement resources before you need them.

4) Taking a training approach to fraud detection and prevention by educating employees. Use counterfeit money tests, inventory training, point of sale system training, and generally explaining how losses impact the viability of the business and how employees can help minimise these losses.

5) Screening employees very carefully by looking at past job performances, posing direct questions to them in interviews, and speaking with relevant persons at past employers.