Four Eyes On Everything!

Date August 4, 2022
Categories

I continue to be amazed reading about nonprofits as victims of fraud or theft. Girl scout cookie money stolen, church collections under deposited, prom and wedding dresses and a fedora purchased from corporate accounts: the incidents just keep coming.

Nonprofits, particularly smaller ones, face a great number of challenges. They often operate with limited resources, have fewer financial controls, tend to be more trusting of staff and volunteers, have ongoing staff turnover, and many are not well versed in financial matters. The Center for Audit Quality noted, “Fraud cannot occur unless and an opportunity is present.”

Some red flags often ignored:

  • An employee living beyond their means
  • An employee unwilling to share job duties or take a vacation
  • Vendors who are not “recognizable” outside the accounting department
  • Bank accounts not reconciled timely and reviewed by a second responsible party
  • Thinking the auditor will catch it
  • Volunteers having access to confidential data, such as banking information
  • Missing documents

A recent report indicated that 34.5 percent of fraud involves cash. How is the fraudster operating? Some usual schemes:

  • Stealing from cash on hand: petty cash funds, cash register banks, church collections, and donation cans are all subject to cash theft.
  • Creating fake vendors or fake employees and writing checks to them
  • Creating fake or duplicate checks, then writing, cashing,and recording them in accounting records as vendor payments
  • Falsifying financial reports and documents: altering or back-dating documents
  • Submitting false expense reimbursement requests
  • Paying personal expenses from organization accounts

The list is not all-inclusive, and, perhaps even more shocking, in a large number of reported frauds, the fraudster has been with the organization for years. Seniority didn’t matter.

Self-defense

So how can a nonprofit defend itself? Fraud prevention does not necessarily require a large budget or a full-time risk manager. Smaller organizations can follow some simple steps to create an anti-fraud environment:

  • Establish an anonymous reporting system.
  • Create a culture of compliance, where nothing gets overlooked and no one gets ignored or criticized for coming forward.
  • Require supporting documents for EVERYTHING!
  • Control the use and access to credit and debit cards.
  • Segregate duties as much as possible; require vacations be taken and those duties be handled by another staff member or volunteer.
  • Rotate duties, particularly for volunteers.
  • Establish and train a board audit committee to review safeguards throughout the organization on a regular basis.
  • Train board members who may be less savvy. Someone on the board should have the skills, knowledge, and expertise to handle financial issues.
  • Reconcile bank accounts immediately each month. Understand that “uncleared” anything may be a problem that should be addressed immediately.
  • And my personal favorite: four eyes on everything. Require two signatures on checks and two people counting all cash being handled.

A recent report indicates that about 40 percent of nonprofit frauds do not get reported to law enforcement. Nonprofits fear damage to their reputations, negative publicity, and the resulting loss of funding. So what should be the protocol when a fraud or theft is discovered? The organization should have a standard response plan that should address:

  • Who gets notified of the situation: the board, the attorney, the insurance agent, the bank?
  • How is an investigation handled?
  • Who addresses the other employees and volunteers?
  • Who addresses the public, donors, and the media?

Planning ahead and documenting the process should be a standard practice for every nonprofit. Good, consistent internal control systems can help to provide reasonable, if not absolute, assurance to the organization. Still, no organization is immune.

If you have any questions regarding nonprofits as victims of fraud or theft, please reach out to your HBK Adviser.

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Tips for Manufacturers Facing Inflation, Supply Chain Disruptions, and Other 2022 Challenges

Date February 18, 2022
Categories
Article Authors

As we move into 2022, manufacturers continue to report strong demand and increased production. However, the labor market remains tight and the global supply chain disruptions, inflation, and the omicron variant continue to present obstacles for companies. These are the highlights of the National Association of Manufacturers (NAM) Fourth Quarter 2021 Outlook Survey.

NAM surveyed 389 manufacturing companies to compile the results. The respondents included small, medium and large manufacturers. Nearly 87% of the companies were positive about their entity’s outlook. These companies have a combined expected revenue growth rate of 5.2% for 2022 and also expect full-time employment to increase 3.4% over the next twelve months. The expected growth rate of product prices was 5.9%, an all-time high for the survey that began in 1997. This figure is consistent with numerous recent inflation indices that continue to indicate inflation that we have not seen in quite a long time. Another record high reported by the survey is that the respondents expect employee wages to increase 3.8% in the coming year. Similarly, the companies expect raw materials to increase at a pace of 6.5% and health insurance costs to increase a whopping 8.1%.

Given the above, what can your company do to be prepared for the near-term future, while keeping an eye out for the long-term, and how can HBK Manufacturing Solutions assist?

First, it is imperative that you review and update your budgets and forecasts for the coming year. In particular, sales forecasts, cash projections and inventory levels should be compiled and monitored. It is also recommended that tax projections be prepared as the year comes into focus. Companies using the LIFO method to account for inventory should integrate a LIFO projection with the tax projection, as inventory levels and materials costs may have a dramatic impact on LIFO in 2022.

We also recommend that your company review and update your strategic plan to adjust for any possible changes to the plan as a result of the expected circumstances. Reviewing and updating a strategic plan is always a good idea and now is as good a time as any, considering the constantly changing landscape.

As it becomes increasingly difficult to find, train and retain qualified employees, we recommend that companies evaluate their hiring, training and retention methods and look for new and innovative ways to enhance your workforce. Consider engaging an outside company that works with manufacturers to accomplish this goal.

Finally, review your capital investment requirements and plan accordingly. With the global supply chain issues, lead times have been stretched considerably. It is important that your capital investment requirements, sales projections, production and cash forecasts are properly aligned.

HBK Manufacturing Solutions has a team of experienced professionals that can help you with all of these items and more. Please contact us if we can be of assistance in helping your company thrive in 2022.

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