Tips for Orange County Business Owners to Avoid Fraud

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Orange County business owners can avoid fraud and the damages and penalties that arise therefrom. It is a harsh reality that a business can not only suffer at the hands of a wrongdoer, but also incur penalties and damages after being the victim! The issue is rampant in California.  In Orange County, fraud attorneys are employed regularly to address it.  We provide some examples here and tips as to how owners can avoid and cope with fraud.

  • Avoid Misleading Letters Fraud: The State of California Tax Franchise Board warned businesses about a scam called the “misleading letter.” California corporations and LLCs are not required to file board minutes with any government authority. LLCs can file the necessary information return with the California Secretary of State for $20. The misleading letter scam contacts businesses and tells them they need to file board minutes or information returns for a higher fee. The letters have official looking forms and ofsgh-photo-4Cficial sounding names. The letters threaten fines and penalties and suspension of the business’ powers, rights, and privileges for failure to comply. Do not comply with those demands; rather, ensure that you are filing the proper and necessary forms, such as information returns, with the Secretary of State.  Filing the wrong forms with a fraudulent group does not relieve you of responsibility to file the proper forms with the State.  If you receive these fraudulent demands, submit written complaints and a copy of the misleading letter to: CALIFORNIA OFFICE OF THE ATTORNEY GENERAL, CALIFORNIA DEPARTMENT OF JUSTICE, PUBLIC INQUIRY UNIT, PO BOX 944255, SACRAMENTO, CA 94244-2550.
  • Avoid Payroll Fraud: Payroll fraud can happen to anyone.  Essentially, the fraud occurs at the hands of employees who turn in false time records, or overstate their working hours.  Grifters are smart. They will keep their fraudulent activities to what usually amounts to the neighborhood of a rounding error on your books. So without reconciliation of payroll to time-keeping records, you will never pick up on their schemes.  In fact, Forbes says that 27% of businesses encounter payroll fraud. It occurs in businesses with fewer than 100 employees more often than large companies. Orange County business owners can avoid fraud in this area by regularly reconciling payroll accounts to the business’s time-keeping system. The reconciliation should occur monthly or at least quarterly. Any longer than that and the money will be long-gone before you realize what’s happening.
  • Avoid Second Check Fraud: This type of fraud generally involves a trusted bookkeeper or an accountant. The scam calls for the grifter to write a second check to herself when paying one of your suppliers to whom you regularly write checks. The grifter writes the second checks for small amounts and codes them with the code for your regular supplier. The scam may take place over several years. It is not unusual for such fraud to aggregate to substantial amounts (a half million dollars or more) over several years. Even if you  check financial records, you may not notice an overage that appears in a reasonable range and spread over several expense accounts. You can avoid this by having more than one person with check signing authority and more than one person reconciling the bank accounts.
  • Avoid Over-Zealous Ordering: This type of fraud usually involves an administrative assistant or office manager who regularly orders supplies. The grifter over-orders supplies, then returns them for a refund in the form of a gift card. He/she takes the gift card, buys something small, and then pockets what’s left of the card. It may not seem like high dollar fraud but even a $50 gift several times a month can add up over the years.
  • With Friends Like these…: Hiring employees simply because they are family or friends or someone you have sympathy for is never a good business decision. Such emotional hires often work into positions of trust with check-writing ability or some other control over financial matters and often with little supervision. All potential employees should face the same strict standards. Make personal accountability and checks/balances a part of your business’ culture. Establish at initial job interviews that your company has zero tolerance for fraud and has established office procedures that ensure a second set of eyes reviews all activities related to financial matters. Trust, but verify.
  • Stolen Credit Cards: Accepting a stolen credit card leaves your business without recourse to recover the money stolen. Always, always check several forms of identity, check if the system declines the card, and check to see if the card’s number appears on the stolen credit card list. Of course, if your business does a lot of internet business or other non-face-to-face transactions, you are most ripe for this type of fraud. Orange County business owners can avoid fraud by checking all identifying information, especially for larger orders. Get phone numbers, address, the three-digit code on the back of the card, the precise name, etc. Mismatched addresses are a clue to fraudulent orders. If you are suspicious of an order, do not process it. Trust your intuition.

To read more about payroll fraud, read the Forbes.com article “Payroll Fraud – A Big Threat and How to Avoid it.” To talk more about business fraud, or anything else, please contact us.

Stephen Hammers

Stephen Hammers

Stephen Hammers is a California attorney with over 24 years experience in the trial of business and real estate matters. He has a 100% success rate in jury trials as lead counsel, and tries cases in all Courts of Los Angeles and Orange Counties. He is a writer and lecturer in matters involving business fraud, real estate and commercial lease litigation.
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Stephen Hammers