McGowen, Hurst, Clark & Smith, P.C.
Celebrating over 65 Years...all because of You! Fraud Hotlines - The Most Critical and Cost Effective Approach to Prevent and Detect Fraud
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e hear about fraud in the news almost daily, and believe it would never happen to the organizations that we own and manage. However, in reality all organizations are susceptible to fraud. All organizations must implement adequate internal controls to help lessen the risk of fraud and protect themselves from potential losses due to fraud. Providing individuals with a way to report suspicious activity is a crucial part of effective anti-fraud internal controls. Fraud reporting tools, such as hotlines, should be set up to receive tips from both internal employees of an organization as well as external members, and should allow anonymity and confidentiality. Fraud hotlines are not only the #1 way fraud is detected, but they also help establish a strong and positive tone at the top which is the #1 way fraud is prevented.
2012 Report to the Nations
According to the Association of Certified Fraud Examiners in their 2012 ‘Report to the Nations’ on Occupational Fraud and Abuse, a typical organization loses 5% of its annual revenue to fraud, which translates to a potential fraud loss of more than $3.5 trillion worldwide. A typical fraud lasted 18 months before being detected and caused a median loss of $140,000. Frauds were typically caught within 12 months when a hotline was in place versus 24 months when there was no hotline. Organizations with fraud hotlines suffered much smaller losses than organizations without them. The average occurrence of fraud at an organization with a hotline is $100,000 and without a hotline is $180,000. Just catching fraud early and reducing the damages one time potentially covers the cost of the hotline for decades, and that does not consider the amount the hotline prevented from being lost. The Association also found that fraud is more likely to be detected by a tip than by any other means. Over 40% of all fraud is detected by a tip and nearly 50% of all tips come from employees of the organization. The second most common detection method accounts for only 15% of detected fraud. This finding has been consistent since 2002, when tracking data on fraud
detection methods began. Anti-fraud internal controls appear to help reduce both the cost and duration of the fraud, with the most effective of these controls being a hotline. It should also be noted that small organizations are disproportionately victimized by work-related fraud because they typically lack adequate and effective antifraud internal controls compared to larger organizations. Managers and owners of small businesses should focus their anti-fraud efforts on the most costeffective control mechanisms, such as hotlines, employee education and setting a proper ethical tone within the organization. Hotlines can be successfully implemented without burdensome effort or expense.
Red Flag Reporting
There are many companies available that can assist small organizations in implementing a fraud hotline. McGowen, Hurst, Clark & Smith, P.C. has recently partnered with Red Flag Reporting to make these services available to our clients. Red Flag Reporting is unique because unlike most hotlines, their reports do not go straight from the operator to the client, but first go to an experienced fraud examiner who provides a preliminary assessment at no additional cost. Also, most other providers do not include employee training as part of the set-up fee. Red Flag Reporting provides live, onsite training from an experienced fraud examiner. Red Flag Reporting also provides: A nationwide toll-free number staffed by live operators and a web reporting portal available 24/7/365. Web-based ability to report in both English and Spanish and callbased ability to report in 200+ languages. Casey L. Lehman, CPA Manager Continued on back page
Client Profile
Control Installations of Iowa, Inc. Helping Businesses Stay Safe, Secure, Energy Efficient...and More My family took a Caribbean cruise this past year. It was great. Blue water, warm breeze, lots of food and… facial recognition software. Prior to visiting with Wayne Hansen, president and founder of Control Installations of Iowa, Inc., I wasn’t exactly sure how random cruise photos of my family would appear in our photo folio on board, as photographers, after snapping our photos, would never ask our name, cabin number or any type of identification. The photos would just appear in our folio. However, Wayne informed me that the cruise line was most likely using facial recognition software, a computer application that verifies a person from a digital image—one of the many new and innovative products that Control Installations of Iowa, Inc. can provide for their customers.
Their client base is diverse and includes customers in healthcare, finance, gaming, insurance, technology, education, government and manufacturing industries. As one might surmise, CI3 products and services have evolved over time to meet the changing needs of customers, as technology expertise requirements are constantly advancing. Wayne said, “As newer computers, software and hardware become available, we are tasked with having a complete understanding of the product in order to engineer, install, program, commission and service the systems. Our goal is to educate and train our customers thoroughly enabling them to use the system to its full capacity.” Wayne shared that one of the biggest changes that has occurred in 31 years is Control Installations of Iowa, Inc. the computer control units. Des Moines MHC&S is proud to In the early years, buildings profile our client, Control would not have any computer controls or perhaps just one Installations of Iowa, Inc. (CI3) in this issue of our Client serving the main user interface. Today, they install systems Bulletin. CI3 is a building systems technology company in buildings with thousands of small processors located in providing computer controlled systems found today in a the ceilings and equipment rooms, which operate all facets typical commercial, institutional, industrial or government of the different systems through the facility – all integrated facility. These systems include building automation, lighting and all talking to each other. controls, automatic door systems, safety and security systems, energy management systems, networked video Customer Retention is Key systems, interactive TV systems and other customized Customer retention is very important to CI3 and one systems to meet the changing needs of their customers. of their highest priorities. They are proud of their service
“ ” “Friends don’t let friends down.”
CI3 has been providing systems integration services to small, midsize, and large institutions and corporate facilities since its founding in Des Moines in 1983. According to Wayne, “No job is too small, as many of our large customers who we service today have grown from small businesses.” Today, with 120 employees and branch or satellite offices in Des Moines, Kansas City, Cedar Rapids, Omaha, Quad Cities, as well as Sioux Falls, CI3 performs work locally, nationally and internationally for over 1000 active customers, providing in-house engineered software, hardware installation projects and service accounts.
abilities, technology skill-set, and the quality of both their products and installations. With a customer retention rate of over 95%, Wayne said, “We build and maintain our customer relationships by being honest, fair and knowledgeable. CI3 associates work hard to really get to know our customers, and together a trust relationship is built. Most often we become friends…and well, friends don’t let friends down.”
CI3 - 100% Employee Owned
In April of 2013, CI3 became a 100% employee owned company. This was accomplished with the use of an employee stock ownership plan—an ESOP. According to the National Center for Employee Ownership, ESOPs were almost unknown until 1974. Today about 12,000 US companies now have ESOPs or similar trust-based plans, covering over 11 million employees. Continued on back page
Scavenger Fun Hunt Winner Thank you to everyone who participated in our Scavenger Fun Hunt!! Out of many correct entries, Ted Rumph, CFO of Barker Lemar, was the lucky winner of a $200 Visa Gift Card! We hope you enjoyed looking through our new website. Visit www.mhcscpa.com today to find out how to “Maximize Your Deductions” and other valuable information. n
Dave Farnsworth Recognized in the 40 Under Forty Event! Dave Farnsworth, CPA and Partner at McGowen, Hurst, Clark & Smith, P.C., was inducted into the 2014 Forty Under 40 class. This Forty Under 40 event, sponsored by the Des Moines Business Record publication, honors 40 local business leaders under the age of 40 who have demonstrated impressive career achievements and unparalleled community involvement. A reception was held on March 11, 2014 to celebrate all inductees. Congratulations, Dave! n David A. Farnsworth, CPA Partner
Ted Rumph, CFO of Barker Lemar, is presented with a $200 Visa Gift card by Rose Breuss, Marketing Director, McGowen, Hurst, Clark & Smith, P.C.
MHC&S Exhibits at the ISAE Meeting MHC&S was once again proud to be an exhibitor at the Iowa Society of Association Executives (ISAE) Quarterly Membership Meeting held in April. It was great to visit with so many ISAE clients as well as meet new friends. We appreciated the opportunity to share information about our firm and introduce our new value added service, Red Flag Reporting. We want to congratulate Pam Peterson with the Iowa Bankers Association, winner of our drawing for the $100 gift card to Flemings Restaurant. Congratulations, Pam. n
Pam Peterson, Iowa Bankers Association, was the recipient of a $100 Fleming’s Gift Card, presented by Kristin George, MHC&S Manager, during the ISAE Membership Meeting.
Call Us Today! 515.288.3279
Control Installations of Iowa -
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After spending nearly 40 years in the business and with retirement on the horizon, Wayne researched ownership transition options and found an ESOP might be a good fit for his company. He said, “As I began to look at my retirement, the option of turning the company over to the hard-working people who helped us build and grow the business appealed to me.” With a team of external ESOP experts and an employee committee to help educate the new owners about employee ownership, the conversion to an ESOP was completed. It is a win-win situation for all, as it provides tax benefits for the company, stability for their customers, and a ready-made retirement fund for employees. Wayne said, “Our employees have the ability to make a difference in the value of their retirement account every day as they work. So far, the ESOP is working out great.”
But There Are Challenges
With CI3 being a very specialized company one of their main challenges is hiring additional qualified personnel to fill their workforce. Wayne shared that in their industry, they see some jobs at a good salary level that do not require a 4+ year degree. He said, “There are excellent technical programs available at educational facilities as well as apprenticeship programs that can prepare technicians in many fields with the skills they need to be successful at their jobs.
Fraud Hotlines -
In addition, going this route, young people receive the training and experience they need without excessive debt upon graduation.”
What Does Hold?
the
Future
The CI3 business model is built around sustained growth – primarily through acquisitions and organic growth. Wayne indicated they Wayne Hansen, President, CI3 plan to look at both of these methods to meet the goals of their model. While this may entail additional offices, location will depend upon where the growth opportunities surface. Wayne said, “As long we continue to work hard and maintain our client’s respect, we will continue to grow and be successful.” If you would like to learn more about Control Installations of Iowa, Inc. and find information on how to keep your business safe, secure, energy efficient and more, we invite you to visit their website at www.ci3.com. n Rose Breuss, Marketing Director
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Posters hung at key locations within your organization (collateral material helps keep the hotline top of mind). Wallet cards for all employees. Quarterly emails to all employees to encourage familiarity with the hotline. Quarterly newsletter to management regarding financial ethics and risks. 1-hour live fraud awareness seminar for your employees. Pre-recorded fraud awareness webinar for your future use. Detailed reports. Professional report assessment.
comfort that the hotline provides you with a safeguard that may identify employee concerns or complaints before they develop into a controversial situation. Along with fraud, employees can also report critical issues such as safety violations, threats, harassment, substance abuse, and discrimination. Fraud can be damaging both financially and to an organization’s reputation, so don’t delay in implementing a fraud hotline in your organization! Nearly half of victimized organizations were unable to recover their losses. Because of this, proactive measures to prevent and detect fraud are critical. For more information regarding these services, contact Joni Tonnemacher at JTonnemacher@mhcscpa.com or 515288-3279. You can also visit www.RedFlagReporting.com for further information. n
Peace of mind!
Don’t Delay
By putting this hotline in place, you will convey to your employees that your organization is committed to their safety and well-being. As an employer, you will have
Casey Lehman, CPA, is a Manager in the Audit Department at MHC&S. With more than 8 years of experience, Casey works with small businesses and nonprofit organizations to assist them with audit needs.