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By Justin Greenfelder What It Means for Your Practice Fraud Detection and Prevention: Typically, fraudsters will convince themselves that their conduct was justi- fied or that they are entitled to that money. Fraudsters will tell stories that sound completely plausible to them and attempt to rationalize their conduct. They never see themselves as criminals. Once fraud is detected, you have options. Misuse of corporate funds subjects the perpetrator to a host of potential civil claims. All sharehold- ers, directors, officers, and partners owe a fiduciary duty to each other and the corporation; thus, the failure to safeguard the corporation's funds would be a breach of that duty. An employee's contract may create certa in duties regarding the handling of expenses. Conversion and negligence are also possibilities, as is civil fraud especially if the perpetrator's conduct was concealed from the company or the other partners. Conspiracy occurs when there is more than one perpetrator. Criminal prosecution for fraud, theft or embezzlement is also possible. If income is misstated on a tax return due to fraud or theft, it could lead to federal prosecution or adverse tax consequences like fines and penalties. There is no sure-fire method to detect- ing and preventing fraud. Perpetrators typically act in secret and attempt to cover their tracks. Understanding the fraud triangle can help you deal with these unwanted situations. Justin Greenfelder is an attorney with Buckingham, Doolittle & Burroughs in Canton and a member of its Health & Medicine and Litigation Practice Groups. For more information about the law firm, go to www.bdblaw.com or e-mail Mr. Greenfelder at jgreenfelder@bdblaw.com. ■ IT CAN'T HAPPEN to you, right? You work hard to build your pract ice. You ma ke w ise investments and are cautious in making purchases. But at the end of the year, your balance sheet doesn't look quite right. Could it be because a trusted employee or longtime partner is stealing from you? We have all heard the stories, but we don't believe it can happen to us. Understanding the "fraud triangle" — pressure, opportunity, rationalization — is key to detecting and preventing fraud. The first step in preventing fraud in your practice is to take a close look at your own organizational structure and identify the factors that may lead to fraud. These may include: + Placi ng to o much t r u st i n ke y employees. + Lack of independent check s on performance. + Inadequate attention to details. + No separation of duties between accounting or bookkeeping functions. + Lack of clear lines of authority and responsibility. Fraud is typically perpetrated in these gaps in your organizational structure, so identifying and closing them is crucial to prevention. Pressure, the first leg of the triangle, is what typically motivates the fraudster. This may come from any of the following sources: + Living beyond one's means. + High personal debt or other financial difficulties. + A feeling that compensation is not sufficient. + Family problems. Opportunity involves the method by which fraudsters carry out their acts. Fraudsters are typically attracted to "low hanging fruit," meaning that if it is easy for them to steal there is a g reater li keli ho o d t h at t he y will. Skimming of cash or use of com- pany funds for personal purchases are simple schemes that perpetrators may employ without adequate controls. More complicated schemes may include setting up shell companies and submitting fa ke invoices. You should a lso be aware of mischaracterized, overstated, fictitious, or multiple reimbursements for certain expenses. ++++++++++++++++++++++++ + +++ + +++ ++++++++++++++++++++++++ BUSINESS SECTION 2 0 | Cleveland/Akron/Canton MD NEWS ■ M D N E W S . CO M ■ JA N UA RY/ F E B R UA RY 2 0 1 5