Spring 2010 issue of Horizons

PREVENTING AND DETECTING FRAUD

Despite the declining volume of transactions, it is even more important to maintain strong management involvement and effective internal controls.

With the current “stress” of the economy, instances of fraud are increasing. Some reasons for this may include: • Employees also under personal economic pressure • Sense of entitlement • Pressures to demonstrate better financial results

PREPARE FOR BETTER TIMES

What will the industry look like when the market turns? Changes in banking requirements will likely mean:

• Banks will likely need a higher level of assurance, whether it be an audit, review or compilation. • Tax return and financial statements must be completed and filed on a timely basis. • Information often will be needed and monitored in “real time.” • Builders will operate with less land, specs and models. • Bank covenants will be more restrictive.

According to a 2008 study by the Association of Certified Fraud Examiners:

• U.S. businesses and organizations lose, on average, 7 percent of their annual revenue to fraud. • The average fraud scheme occurs over a two-year period before being detected.

What makes an organization vulnerable to fraud?

BUILDERS OPERATING IN A CHANGING MARKET IN 2010 MUST:

• Weak internal controls • Too much trust given to certain individuals • Poor management oversight • Lack of financial audit • No background checks • Lack of independent checks on bank/credit card statements • Failure to use a bank’s fraud prevention tools

• Be proactive to take advantage of opportunities when the market does turn. • Maintain a strong website presence. • Be able and available to purchase “revalued” lots. • Rebuild net worth — save, save, save!

Questions? Contact:

Steven W. Hays Sr., CPA Partner-in-Charge Home Builders Services Group 314.290.3336 steve.hays@rubinbrown.com

In particular, fraud issues related to the home building industry include:

• Payments to phony subcontractors or suppliers • Payments for personal expenses • Inappropriate use of company credit cards and vehicles • Misappropriation of model home furnishings

31 u spring 2010 issue