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July 2010 News and Notes

Fraud Report (Part Two) (And a Special Offer)

Last month, we linked an article that touched on some of the highlights of the 2010 Report to the Nations on Occupational Fraud and Abuse prepared by the Association of Certified Fraud Examiners. Among the most startling conclusions of the report, the estimated value of annual fraud world-wide is $2.9 trillion. There is a tendency for small business owners to dismiss this kind of report, believing that fraud is something that primarily affects large companies. The findings suggest otherwise.

No matter how you slice it, fraud is most likely to occur in a small to medium size, privately owned company. 42% of all reported frauds took place in private companies. 31% took place in companies with fewer than 100 employees. In both cases, those categories topped the results. Furthermore, the largest median losses, $231,000, also occurred in the private business classifications.

Sadly, the idea that a business blessed with long-term employees is less vulnerable to fraud also turns out to be false. The highest numbers of cases, almost half, were committed by employees with one to five years tenure. The highest dollar frauds were committed by employees with over five year’s tenure.

The notion that it is easy to pick out the kind of person who might commit a fraud also turns out to be false. That’s because 86% of perpetrators had never been charged with or convicted of a prior offense.

Not all frauds involve cash, and not all frauds are perpetrated by employees. Non-cash assets, such as inventory or equipment, may be diverted to personal use, since such items are easily converted to cash. Suppliers may commit fraud, acting alone or with the collusion of employees, by billing for undelivered merchandise or charging higher than the agreed upon price.

Two things are certain during economic downturns: Businesses are likely to spend less on fraud detection, and the pressure to commit fraudulent acts increases on employees and other interested parties.

We want to help. Between now and August 15, 2010, we will provide a free fraud detection evaluation for the first ten businesses that contact us and mention this report. The evaluation is not meant to detect fraud. Rather, it is meant to assess potential vulnerabilities and to evaluate the strengths and weaknesses of systems in place to assure the efficacy of business transactions. The evaluation is free, and there is no obligation to purchase additional services. Should you be interested in our other services, including the part-time controller service (a great fraud deterrent), we will be happy to discuss those with you.
 

HIRE Act Tax Breaks

In case you hadn't heard, a new law allows businesses to take a payroll tax credit for wages paid for most of 2010 to previously unemployed workers, provided the workers were hired to fill new positions or to replace employees who voluntarily quit or were terminated for cause.  The best part of this program is that your business does not have to be a current income tax payor in order to take advantage.  The credit is taken against payroll taxes and can be claimed for the first time on the June 30, 2010, Form 941, due by the end of July.

The following link from the AICPA provides some of the details.

http://www.webcpa.com/news/New-Workers-Eligible-Tax-Exemptions-54913-1.html?st=RSS

New 1099 Requirements to Start Next Year

Buried in the health care reform law passed earlier this year was a provision that had nothing to do with health care.  In an apparent effort to generate some extra revenue, Congress included a provision to vastly expand the requirements for businesses to issue 1099's to vendors.  Under current rules, businesses are only required to issue 1099's to certain unincorporated service providers.  Beginning in 2012, the requirement will be expanded to include purchases of all goods and services, regardless of the legal structure of the vendor.  This means that purchases of items such as inventory, tools, shop supplies and office supplies, along with services, will require a 1099.

Initially, there was a feeling that this provision might be repealed, or at least modified, before 2012.  However, this recent comment by the IRS, "We're looking at ways to try to minimize the burden on businesses as much as possible," does not sound promising.

Although the 1099's in question won't be due until January 2013, it is important to make sure that your records can easily produce the information to comply.  That means that everything must be in place prior to the start of 2012.

Here is a brief recap from USA Today.

http://www.smartbrief.com/news/cpa/storyDetails.jsp?issueid=D4BF09F9-C037-4C23-926B-96151515B462&copyid=0A9E7B3C-0F3D-4E35-9692-76A4E35E2E45&sid=391d84e3-0d58-44a1-9c84-f375edfe5702&brief=cpa