Small Business Owner Fraud


Hello
I'm hoping I can get some answers on which way to go about reporting fraud in the company I work for. I know that some of the things that go on can't be legal, but I'm not sure how they would apply to a Partnership company. Before I go further I want to make sure I'm in the right group.
Reply to
Robo

"Robo" wrote
The first thing someone will ask is: how do you know.
What position are you in to know - for sure - that there is fraud.
And yes, accountants know about fraud.
Reply to
Paul Thomas

This company is owned by 3 people. A husband, wife and a third owner. The business is incorporated and has been in business for over 15 years. I know or feel that there is fraud because Items are purchased for the home, but are never paid. I was told that because it is a small business they can do that. I know that all collected taxes are not paid to the local governments. I have noticed several transactions where a customer has paid cash and it was either wiped of the books or put in as a credit card sale, but I'm not sure how it could be balanced or hidden like that. I have all the company data files, but I'm not sure how to approach it. There are only 3 people in the office and I'm one of the 3. If the information was leaked it would be obvious who leaked it. The situation just bothers me.
Reply to
Robo

"Robo" wrote
Obviously, someone is paying for those items.
And, since you don't have any knowledge of the accounting of those items, it may very well be that they are not taken as a deduction on the partnership return (thereby creating income to the owners).
Small businesses often comingle business and personal expenses. It's not suggested, but it happens - often.
hmmmm.
Now that's a novel way to hide the transaction.
It can't.
Ah, evidence obtained through an illegal act.
Return it ASAP.
You are breaking the law by taking the data.
Then find another job.
If indeed they are "cooking the books" it'll catch them at some later date. You probably don't want to be there when the @#$%&$# hits the fan.
Reply to
Paul Thomas

LOL Thanks for the advice. However I didn't take the company files by stealing them. I store them off site per their request. I also use them for developing MS access files for easy navigation and kind of the office helper type files. We use Peachtree and it's not really made for the business needs other than accounting. The materials in question were bought for a new home. Well over $80,000. I think it is time for a new job, I just didn't want to walk away knowing I should have done something. Thanks for your help.
Reply to
Robo

"Robo" wrote
Remember that the data is their proprietary property, and you can't keep it if/when you leave. And you certainly can't give it to someone else.
Reply to
Paul Thomas

I second Paul's advice. I've worked for CPA's who were dishonest (not merely agressive) and it's best to just quietly start hunting for a new position elsewhere.
Some thoughts:
1) If it is THEIR business and they are using funds from that business for personal use, it's less of a problem. They are stealing from themselves and no matter how they consider it, it's simply a distribution to themselves. You mention a THIRD owner, however, that may not be aware of this. In that case, I think there may be some ethical responsibility to inform him, as an OWNER, if you believe he does not know AND would be upset about this.
2) Again, the best idea is to get out of that situation, period.
Reply to
jo_jo

"Paul Thomas" wrote in news:SAZyf.140637$ snipped-for-privacy@bignews6.bellsouth.net:
I think I must disagree here, for a very specific reason. Copies (rather than originals) should be kept for Robo's own protection.
Robo, you are in a dangerous situation. Because, if it becomes clear to the wrong person that there is fraud going on (a partner who doesn't know? an auditor of some kind?), you are in danger of being blamed and framed.
My advice is to carefully document all the irregularities you have seen go by, the questions you asked, of whom you asked them, and the answers given to you. Keep this file carefully.
The other crucial part is to start looking for another job _pronto_. Eventually fraud comes out. It's never pretty. And even if you avoid being blamed or framed, you will be out of a job. Either the company will go under, or the "honest" partner (if there is one) won't trust you -- because you said nothing to them. And you'll be fired.
I still keep a file of data to protect myself from a similar situation that was almost ten years ago. I left first, sent my data to the board of directors, and watched the sparks fly from a very safe distance.
Catherine
Reply to
Catherine White

"Catherine White" wrote
I agree with what you are saying, but there is no need for him to have "all the company data files" which includes (or so it would seem) proprietary information, like client/customer lists, supplier information, programs/software, etc that should have no relation to whatever fraud there may be.
While he may have been asked to keep it off-site for backup reasons (which sounds odd to me to begin with) he can't keep that data if/when he leaves. The reason it sounds odd is - why isn't the owner keeping that data him/her self? I certainly wouldn't want a staff person walking off with all my back-up data. While I may ask them to assist in the backup process, I want the disk/tape/CD to go home with me.
If this is of grave concern to him, he should consult with an attorney ASAP to begin to firm up his legal liability and position. It also gives the ability to have discussed the matter ~before~ anything "hits the fan" and you are scrambling to explain it to someone while you are in panic mode.
Reply to
Paul A. Thomas

Best find a new job as others stated, and stay away from small business.
I built 2 companies and am now a CPA building another company in the technology field. Do you think the money comes out of my pocket for computers at my house? That is a little more justifiable. However, I work with many small business owners that never report cash revenues, purchases at Costco include many personal item. It happens everyday by thousands of small business owners. That is not fraud, maybe tax evasion.
I won't go into the nature and extent of my relationships with those business, but I can tell you that I have yet to met one company that does everything 100% by the book. Yes, many of the activities my not go over well with the IRS, but that is why we all start our own companies.
As for collecting sales taxes and not remitting them to the State/City, when they get audited it might come to light. I guess you could make an anonymous phone call. That activity is a little more serious.
Reply to
brecker

What is your definition of large? Large public companies, or are they still closely held? Generally, larger companies, even non-public, have more internal controls, segregation of duties and, depending on the structure, more board oversight. Public companies are another question. And to me large means public. Some company doing 5-25 million is not large. If he found himself a nive middle market company, over 100 million, I sould say he wouldn't come accross the owner managed activities that most small comapnies engage in and that he doesn't like.
Could be. Everyone has the same goal, pay less in taxes. But again, in larger companies there are generally not the owner managed problems. Maybe financial statement massaging.
Wrong! You don't need all the facts.
How do you think most corporations and CPAs get in trouble. Some little old lady reads a newspaper article, cuts it out and sends it to the State Board of Accountancy and/or the IRS/State. If an individual has the feeling that something is wrong, they can may a anonymous phone call. I have seem CPAs markup audited financials from the prior auditor and send them in. I have declined to continue auditing or working with clients where I have had serious issues regarding integrity of management. Never made a phone call to the IRS, but could have. And, have seen former employees of clients do just that. Don't feel sorry for them when it happens.
In this particular case, taking inventory or cash without reporting the income is one thing. Not fraud, but tax evasion. However, if a company is collecting sales tax and then cancellig the order, they are not just stealing from themselves, but they are now committing fraud by not remitting sales taxes collected. Sounds like they had all the parts to fraud, forget what they are but intent is key and they had it.
All he has to do is send a note to the State Department of Revenue or City finance and they will go out and perform an audit, which they do every day in every state and most major cities.
Furthermore, one of the only two parts of Sarbanes-Oxley that applies to private companies is the Whistleblower protection. His employer can't fire him even if he turned his employer in. They probably would anyways, and it wouldn't be worth the fight, but again the protection is there so people can report questionable actions.
Reply to
brecker

I think, and I could be wrong, that Texas will pay you 5% of any underpayment collections they make for reporting companies not paying their share of sales tax. Not suggesting that in this case.
Sales tax is a hugely, HUGELY complex issue. Lots of things that you would think are subject to sales tax aren't, and the opposite is true as well. It is difficult for small businesses, like the one in this case, to manage the rules and regs sometimes. Normal CPAs in their small audit/federal tax practices often don't have the expertise to deal with this issue.
Reply to
jo_jo

It is not uncommon to have the accounting manager/controller be responsible to keep a copy of a backup offsite. Backing up to the hard disk on the server or keeping the CD in the office is useless if the building burns down.
Stephanie
Reply to
Stephanie Serba

"Stephanie Serba" wrote
Still - the copy is an asset of the company - that he has no right to keep if/when he no longer works for the commpany.
If protecting his ass is important, he should contact an attorney now, so he knows what his leagal options are.
Theft of property charges doesn't make for a good witness on the stand.
Reply to
Paul Thomas, CPA

It shouldn't even be the accounting manager/controller who assumes this responsibility. A third-party company specializing in the pickup/delivery and storage of backup media is the best option.
Reply to
Joe Canuck

True. But he can always turn it over to the authorities if he belives it contains evidence of fraud or tax evasion.
True.
Very true. Unless he turned the file over to the authorities.
Reply to
Stephanie Serba

Most of the people I do contract work for, and my current employer, are way too small to make this an option. However, there are offsite backups you can do through a web-based application and store backups on a backup server, not unlike your web or mail server...
Reply to
Stephanie Serba

Sales taxes are not complex issues. Now, income tax with foreigned owned subsidaries and mutli-state operations gets complex.
Sales taxes are pretty simple. Assigned you activies to a class, the class has a tax code, done.
In this case, the sale took place and management was cancelling the order while keeping the taxes and not remitting them to the state. Two problems here, one is management and the other is probably lack on proper internal controls.
Reply to
brecker

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