My friend Mady Yehia over at Securitax Financial has asked for my assistance as a number of new clients have approached him regarding IRS tax audits and requests for information. Oftentimes these problems arise due to tax preparer errors (CPA's and alike) in failing to record items, some as simple as rental property depreciation or education tax credits. Make sure you review your return completely before filing. Things happen!
Preparing for an Audit
It's possible to reduce audit time and fees with the proper creation of financial policies, procedures and internal controls prior to the audit.
Following the Audit
When responding to the auditor's report, what measures do you take to correct the deficiencies?
Business and Nonprofits both have fiduciary responsibilities and the need for:
- The establishment of internal controls as they relate to accounting and operational needs.
- The improvement of internal controls that have since become outdated.
Board members have a fiduciary responsibility towards the organization and remain accountable for protecting the organization’s financial well being. With respect to internal controls and accountability policies, Ipsen Management Services can assist the finance committee by taking the lead in:
1.) Creating such policies,
2.) Ensuring that they are appropriately documented in a manual,
3.) Confirming that internal controls are being followed
An invoice appears in your in-basket for services that you don’t remember receiving. In fact, you’ve never heard of the billing company. Should you pay the invoice and assume the vendor is on the company’s approved list? Never! Remember, when in doubt, check them out! Fraudulent billing is a major problem more so for services than for products as services cannot be inventoried. However, both can be stopped by matching the billing vendor against those listed on the approved vendor list before taking action. It could simply be an oversight, an exception or maybe a fraud!
Oftentimes, fraudsters create false business entities or shill companies solely for the purpose of billing unsuspecting companies in order to receive payment or free money. All the while the products or services listed on the invoice were never provided nor did the billing company have the wherewithal or the intention of doing so. Many of these shill companies operate from behind a PO Box.
Fraud can even originate from one of your own employees who’s recommended the company switch or change to a specific vendor. In cases of fraud, the new vendor ends up charging a higher price for the same product or service and your employee who made the recommendation and the new vendor share in the excess profits. Often is the case, the vendor happens to be a close friend or relative of the employee.
This type of fraud can also be stopped by asking the appropriate questions. Talk to the vendor who’s been replaced and ask why. Talk to your purchasing department as well. Do a comparison. Running a business is difficult enough so utilize and maintain the company’s list of approved vendors. Don’t allow yourself to become a victim of fraud!
Jerry Ipsen, CFE, MBA
Certified Fraud Examiner / Due Diligence
Ipsen Management Services
Whether advertisements appear on line or received directly from a broker, errors of fact happen. It’s not the typos or honest mistakes I’m concerned with, rather the material misrepresentations that have been lauded as fact.
Important to remember, “are the claims supported by a feasibility study prepared by a leading and respected source?” Even smart lenders know well enough to cross check and compare these claims during their own underwriting process. While developers often fund the studies for their own projects, investors and buyers alike would be better served by conducting their own due diligence prior to investing.
I’m not suggesting all feasibility studies are misleading, but the fact remains that studies (less than being impartial) have sometimes been written in favor of the developer. While these anomalies exist, it is important to have the numbers run for yourself in order to determine the validity of the stated projections. If the numbers don’t work for you, chances are they aren’t working for others.
Check for yourself. Do your own due diligence before investing in someone else’s dream.
While writing a business plan for a large scale residential project in Ulaanbaatar Mongolia, the issue of property ownership was raised by the lender. At the time, under Mongolian law a foreign national was restricted and could only purchase a “land use” permit. Apparently, the Korean owned developer/construction company working in partnership with the Mongolian national was not enough to satisfy the lender.
As of August 2016, Mongolian citizens could own real estate. However, difficulties still exist for corporate entities of any type, foreign or domestic, from owning real estate. While foreigners and foreign firms may own the structures outright, the parcel of land they occupy can only be obtained through the use of "land use rights." Terms of the leases range from one (1) to ninety (90) years.
In China, the ownership of real estate and land usage rights have been separate issues as China practices ‘socialist public’ ownership of all land. As in the case of Mongolia, obtaining land usage rights in China allows the property owner (lease holder) to manage the land in order to develop houses and buildings or even pledge them as collateral. However, true ownership of the land belongs to the state, which also maintains the right to withdraw the land leasing rights mid-term.
The purpose of the above examples while the information is believed to be correct, serve to provide the reader with an understanding of the difficulties a developer or foreign lender may encounter.
Are you wanting a closer look at what’s happening inside your business operation? Look no further than your mailbox! Receiving the bank statement before anyone else affords the opportunity to review accounts for deposits, expenses as well as any unauthorized activity. With the “heads up,” you can match questionable banking items with corresponding journal entries for the Who, What, Where, When and Why!
So before relying on someone else to discover a problem, oftentimes months later, be proactive and assert your control. Not only will you stop or reduce the possibility of suspicious activity, your good and honest employees will appreciate the “hands on” approach!