Multiple Lines of Business Equates to More Roads that Can Lead to Fraud

Posted on Mar 11, 2014

By Pete Miller, CPA, CFE

Fraud can have far-reaching sources and consequences. This article from lehighvalleylive.com highlights, among many other things, that organizations with multiple lines of business have a broader fraud risk profile and also have more extensive ramifications if a fraud is perpetrated.

[For context, the linked article is about the former Bethlehem PA’s YMCA property manager facing trial in the theft of $103,000 from the Y’s affordable housing division.]

On the surface, this scheme started out quite small, as most frauds do.  A person in a trusted role identifies an opportunity and takes the first fraudulent nibble.  Something as innocuous as stealing quarters from washing machines can quickly blossom into more elaborate and convoluted schemes.

All in all, this is an excellent case study in the importance of the risk assessment process, especially for an organization with decentralized operations. One of the key activities in the risk assessment process is the development of a “heat map” that distributes risks into a matrix based on (a) the likelihood of a risk having an adverse impact, and (b) the relative severity of that impact. Any time you have remote locations that handle cash and/or accounting functions, you have increased your likelihood that an adverse event will happen. With greater risk comes the need for greater monitoring and oversight, more than you might have otherwise needed with a centralized operation.

In this particular case, the other axis in the risk assessment matrix – relative severity – could have also been a central character. Imagine for a moment that the accused property manager was successful in her attempt to secure government grant funding. The potential misuse of government funds could have far reaching and damaging impacts. Having a scar like that on your record with government agencies, at a minimum, makes it harder to receive grant funding. At its worst, it limits your ability to get funding.  The reputation damage of fraud can be huge!

Understanding the risks facing any organization is paramount and can’t be stressed enough.  As Benjamin Franklin so wisely said, “An ounce of prevention is worth a pound of cure.”  Hear, hear!

© Clark Nuber PS and Focus on Fraud, 2014. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Clark Nuber PS and Focus on Fraud with appropriate and specific direction to the original content.

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This article or blog contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.

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