Internal Control/Anti–Fraud Program Design for the Small Business: A Guide for Companies NOT Subject to the Sarbanes–Oxley Act

Praise for
INTERNAL CONTROL/ANTI–FRAUD PROGRAM DESIGN FOR THE SMALL BUSINESS

"Internal Control/Anti–Fraud Program Design for the Small Business presents a straightforward, simplified, and practical approach to establishing an anti–fraud program for the small business. The book recognizes the unique environment and issues faced by small businesses and provides logical and effective solutions. Every small business owner or manager should read this and refer to it often as it establishes or reinforces an anti–fraud program."
David McEndree, CPA, CFE, CEO, and General Manager, Poka Lambro Telephone Cooperative, Inc.

"Mr. Dawson provides a clear, compelling, and interesting step–by–step guide on how to set up a properly designed, properly functioning anti–fraud program without a lot of cost or complexity. His anecdotes add flavor and amusement but, more importantly, plainly reveal to us why occupational fraud is ′alive and well.′ It′s a must read for every small business owner or manager."
Tammy Lehman, CPA, CFE, Principal, UtiliBiz Solutions

"Steve Dawson can smell fraud from a mile away! We utilize him to discover fraud within our clients′ business operations–usually after hearing, ′This can′t be happening to my business!′ Steve′s greatest value is his ability to provide easy to understand and implementable advice as to preventing fraud within any size business. Our clients value his insight into the varied ways fraud is committed in today′s business climate."
Gary R. McLaren, Partner, Phillips & McLaren, L.L.P.

"I have known and worked with Mr. Dawson for the better part of 22 years. He has a passion for fraud prevention. He is both an effective speaker and, now, author. With this book, Mr. Dawson has communicated his passion, experience, and knowledge in a concise, understandable, and practical manual. He compares the process of establishing an anti–fraud program to the process of building a house and provides simple, effective instructions for doing so."
William M. Miller, CPA, Partner, Bolinger, Segars, Gilbert & Moss

Preface: Maybe It s Time We Get Back to the Basics

Anti–Fraud Program Design for the Small Business

Small Business Defined

The Anti–Fraud Program Structure

Acknowledgments

Part  I: The Anti–Fraud Environment: The Blueprints, The Foundation, The Ground Floor

Chapter 1: The Architect s Blueprint: Establishing the Framework

The Elements of Anti–Fraud Program Design

Anti–Fraud Environment

Fraud Risk Assessment

Control Activities

Information: Program Documentation

Communication: The Company Fraud Training Program

Monitoring and Routine Maintenance

Chapter 2: Foundational Policies: The Fraud Policy

Foundational Policies

The Fraud Policy: The Essential Elements of an Effective Fraud Policy

Case Presentation

Chapter 3: Foundational Policies: The Fraud Reporting Policy

The Essential Elements of an Effective Fraud Reporting Policy

Chapter 4: Foundational Policies: The Expense Reimbursement Policy

Case: No Questions Asked

Case: It Will Never Be Missed

Case: Larry the Chief Financial Officer

The Elements of an Effective Expense Reimbursement Policy

Appendix 4A: Expense Report Form

Appendix 4B: Supplemental Business Meal and Entertainment Charges Form

Chapter 5: The Ground Floor: The Fraud Risk Assessment Process

Ground Rules for Fraud Risk Assessment

An Example of Risk Assessment

Procedural Steps for Performing a Fraud Risk Assessment

Cash in Bank

Case: The Trail is Gone

Case: Friends in Low Places

Asset Misappropriation

Corruption

Financial Statement Fraud

Section II: Anti–Fraud Control Activities: Raising the Walls

Chapter 6: Control Activities: The Absolutes

Critical Principles of Control Activity Design

Foundational Control Activities

Case: The Mail Drop in Las Vegas

Appendix 6A: Conflict of Interest Form

Appendix 6B: New Vendor Establishment Form

Chapter 7: Control Activities: The Segregation of Duties Dilemma

But I Only Have Two Employees

Prevention verses Detection Controls

The Necessary Review Processes

Chapter 8: Control Activities: General Processes

Two Operational Questions

Common Control Activities

Case: The Cell Phone Reimbursement

Chapter 9: Control Activities: Specific Control Areas

Financial Statement Line Item Control Activities

Section III: Completing the Anti–Fraud Program: The Ceiling, the Roof, and Routine Maintenance

Chapter 10: The Ceiling: Documenting the Anti–Fraud Program

Information

Documentation Keeping it Simple

The Elements of Quality Documentation

Chapter 11: The Ceiling: The Company Fraud Training Program

The Elements of Effective Communication

The Company Fraud Training Program

Chapter 12: The Roof: Monitoring and Routine Maintenance

Monitoring and Routine Maintenance Defined

The Monitoring and Routine Maintenance Structure

Chapter 13: The Sample Anti–Fraud Program

Appendix 13A: Fraud Risk Assessment Framework Form

Appendix 13B: Control Activities Form

Appendix 13C: Documentation of Control Activities

Appendix 13D: Compliance Audit Programs and Related Compliance Audit Working Papers

Section IV: Appendices

Appendix A: The Fraud Policy

Sample Fraud Policy

Sample Fraud Policy

Sample Fraud Policy

Appendix B: The Fraud Reporting Policy

Sample Fraud Reporting Policy

Sample Fraud Reporting Policy

Appendix C: The Expense Reimbursement Policy

Sample Expense Reimbursement Policy

Sample Expense Reimbursement Policy

Appendix D: Fraud Risk Assessment Framework Form

Appendix E: Control Activities Documentation Form

Appendix F: New Vendor Establishment Form

Appendix G: Compliance Audit Program

Appendix H: Compliance Audit Working Paper

Appendix I: Conflict of Interest Form

About the Author

Index

STEVE DAWSON, CPA, CFE, is president and founder of Dawson Forensic Group, a firm devoted to the investigation of fraud and the education of the small business community in internal control/anti–fraud program design and implementation. For the past thirty years, he has performed forensic investigations and related forensic services for various businesses and agencies. He is a nationally recognized speaker in fraud detection, prevention, and internal control design methodologies. He is a graduate of Texas Tech University with a Bachelor′s of Science degree in Accounting and holds a certified public accountant certificate in Texas as well as a certificate as a certified fraud examiner.