May 20

Fraud Trial

Posted by Craig Weston at Wednesday, May 20, 2020

As I start to write this, I am sitting at the Auckland District Court waiting to give evidence in a fraud trial.  A company was defrauded of a large sum of money by a trusted employee.  We were asked to calculate the level of offending.

The matter has left the owner frustrated, hurt and out of pocket.

It's made me think about what can be done to reduce the possibility of this type of thing happening.

Here are some ideas:

  • Don't implicitly trust people (employees) who seem very nice and committed on the outside, without putting checks and balances in place to materially reduce the level of possible offending.
  • Ensure any cash coming into the business is soundly reconciled to back up documentation eg daily till totals
  • Make sure the boss authorises all payments made with supporting documentation available to check things
  • Keep an eye on monthly gross profit margins - how do these compare (actual vs expected).  If actual is way lower this may (or may not) indicate money is being siphoned off to where it shouldn't be
  • Ensure payments to employees are legitimate and in line with their employment agreements
  • Review monthly income and expense numbers against expected budget - are the variances explainable? This one is how the theft was picked up.
  • Take out officers and executive coverage on your Insurance policy
  • Never share logins - you need evidence to be attributable
  • Watch for sole charge people who never take holidays and hoard info, and have large debts (these can be fraud signs)

If any of the above throw up questions, then it pays to address them immediately.  Don't wait until later when it may be too late.

The outcome - the perpetrator was found guilty on all 32 counts but with reparation unlikely.  The person got 2 years 9 months prison.

Fortunately, the business will survive but it may not always be so for others unless the above things are taken heed of.


Oct 14

When Tragedy Strikes

Posted by Craig Weston at Tuesday, October 14, 2014

It was one of those events that you think will never happen. A guy in his 40s dies suddenly from a heart condition that neither he nor anyone else knew about. When I heard the news I went numb. He was my friend and also my client.

He left a wife and 4 young children. He also left a thriving business that depended on him.

How do you deal with things like this?

This tragedy happened just on 20 years ago. As I look back I have noted some key things that helped those involved get through:

  • A group of close business friends set up a management committee to oversee the business while it was groomed for sale – they reported regularly to the widow
  • A general manager was promoted from within to run the business
  • Our firm was responsible for the monthly financial reporting to the management committee

As a result of the above the business ran well and was eventually sold leaving a good amount of money for the widow and her boys.

When a key person like my friend dies suddenly there can be a huge pressure on finances when you have a profitable but undercapitalised business. Fortunately, my friend had taken out enough insurance to give an immediate injection of cash into the business as well as provide a good sum for his family. Without that insurance pay-out the situation could have been very difficult.

Over the years since (and with the above story ringing in my ears) we have assisted a number of our clients into the right amount of insurance cover. I am a believer in this to the extent that we have set up a strategic partnership with an insurance specialist.  Your insurance cover doesn’t have to be huge but it needs to be enough to help you sleep well at night.

I’ll be talking more about this story with our clients over the next year.


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