Even with the economy still riding high, and unemployment at its lowest lows, there's one constant that's not a reason for celebration: Human nature.
Randall Paulikens, a partner in the forensic, litigation and valuation services group at Friedman LLP’s East Hanover office, said he’s seen it over and over again — companies not wanting to dwell on the bad stuff when times are good.
“We get a lot of companies with internal control and other things during these good times that get a little fat, dumb and happy,” Paulikens said. “They get somewhat lax on maintaining vigilance because there’s more money to go around than there was five years ago, let’s say.
“Then, times get bad again — they always do. We come in and suddenly John Doe charged up a couple hundred thousand dollars over five years because he didn’t think he was paid well. Nobody was noticing when the money was pouring in. Now, the money’s gone.”
Paulikens said there’s never a time when the “nobody will miss another $1,000” mindset, as he calls it, creeps in more than when the economy is humming along.
It may have something to do as well with a more freewheeling disposition among some company heads during such times.
“If you’ve got an environment where workers are seeing the owner go on trips and buy fancy new cars, then suddenly you might have employees slipping in expenses that they wouldn’t otherwise because they see money is pouring in,” Paulikens said.
When forensic accountants come in to expose financial fraud in these situations, it tends to be when the money is getting tight again. Then, the oversight pendulum swings the other way.
“It’s just like the way people treat their own health, too; it’s not until you get a scare from a doctor that you start watching what you’re eating, and accounting is no different, except nobody dies,” Paulikens said, wryly adding, “usually.”
Anthony Campanelli, partner in the regional forensic practice of Deloitte Financial Advisory Services LLP, said what he’s seeing a lot of under current economic conditions is traditional financial statement fraud, or a company making adjustments to its numbers to look better.
He did qualify this with a caveat that recessionary periods do feature this fraud, too.
“A lot of it is driven by a company’s own situation within the organization,” Campanelli said. “It may be a company is engaged in this fraud to look better for a potential acquisition, which could occur at any time. It’s hard to generalize.”
Paulikens added to this that companies should also look at potential sources of information fraud during more carefree periods, as well as exposure to cyberattacks.
Being proactive may mean sticking to a mindset more akin to worse times.
“Let’s face it, we’ve all had experiences where, on a personal level, we’ve had to tighten our belts for whatever reason — you look at the silly things you spend money on, re-examine where your money is going and cut back where it’s needed,” he said. “Business is no different.
“It’s best not to forget that, even in the good times.”