In Pursuit of Profit
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The internet is buzzing right now with the high profile story of Ernst & Young (EY) being forced to pay an unprecedented $100M fine by the SEC after it was discovered that hundreds of its auditors cheated on ethics exams to obtain or maintain their CPA licenses. To say that this has rocked the accounting world would be the understatement of the century!
This astronomical fine is the highest ever imposed by the SEC and likely reflects the fact that EY allegedly was aware of the cheating, which occurred over a four-year period, and covered it up instead of reporting it. In fact, the fine is twice what competitor KPMG paid in 2019 after cheating was discovered by SEC regulators. Speculation has it that the hefty fine is also meant to act as a signal to other accounting firms that the commission is not going to tolerate ethics violations, given that the auditors cheated on the ethics portions of the exams (of all things!).
In the wake of this very public news, accounting firms nationwide are being met with a dubious eye from current clients and prospects, who are questioning their ethics as well. And who can blame them?
What kind of accounting controls do you have in place right now?
If you are not sure, or are too embarrassed to answer, chances are you have some work to do.
Internal controls protect your business from not only fraud but also the kinds of financial errors and reporting mistakes that can negatively affect cash flow management, dissuade investors, and hinder long-term business growth.
The possibility of business fraud is the dirty little secret that business owners tend to ignore. Unfortunately, there will always be unscrupulous individuals that try to take what is not theirs, even during hard times. Recent reports of bookkeeper fraud serve as a reminder to business owners that fraud never stops, even when businesses are down on their luck. In fact, a global fraud study found that, on average, companies lose 5% of their yearly revenue to fraudulent activities.
While it is easy to imagine fraud occurring by faceless cybercriminals or strangers sneaking in to rob your company of cash and valuable assets, most perpetrators have deep ties to the business, and many are first-time offenders. Many times, the people you least expect are the ones responsible for fraudulent activity – long-time employees, close friends, and even family. These bonds can make it difficult to spot the warning signs, causing fraud to go undetected far longer than it should.
How to Identify Fake Financial News
Businesses in Washington should be aware of a possibly fraudulent letter claiming to be an official bill for annual business registration fees.
One letter received by an Edmonds-based business directed the business to send $121.86 to a post office box in Olympia. The letter stated, “your state annual report will not be filed until payment is received.”
The misleading letter did not include the Office of Secretary of State logo, as an official letter from the Office of Secretary of State would - see the example pictured above.