Investigating fraud is time-consuming and expensive. There's little choice in the matter for some companies, however. Once a fraud is discovered, it's often necessary to investigate the situation to determine who was involved, how the fraud occurred, how much money was lost, and what evidence supports the allegations of fraud.

Preventing fraud is far less expensive. It reduces the amount of money lost to fraud, and should also reduce the need for fraud investigations. Most companies will recover 25% of less of the funds stolen by employees, so it makes sense to attempt to reduce the amount of fraud in the company.



There are three keys to reducing fraud in companies:
Hire the Right Employees
Bringing on the right employees for your company means two things: One is finding people with the right skills and disposition to do well at the company. The other is finding people with an ethical history. Background checks are easy to do and relatively inexpensive. Important parts of the background check include verification of past employment, contact with references, and criminal and civil court checks.

Create Effective Policies and Procedures
The heart of fraud prevention is in a company’s policies and procedures.Proactive fraud prevention procedures are at the heart of internal controls. While compliance with current regulations is important, having substantive controls that actually prevent fraud is even more important.

For maximum effectiveness, a fraud expert needs to be involved in the development of control procedures. Those experienced with fraud are in the best position to recommend the most valuable controls. Remember that effective controls aren't necessarily expensive to create and implement. There are many inexpensive options.

Educate Employees
Studies have found that employees can be the company’s best watchdogs. As you might expect, most employees are generally honest, and they don’t like to see someone else stealing. If management wants employees to help in detecting fraud, they must educate them on what fraud looks like, feels like, and costs.

Most employees haven’t come into contact with fraud on the job, or they just didn’t know that they were in contact with fraud. Provide basic training for all employees to introduce them to the concept of internal fraud, and give them a foundation for on-the-job watchdog duties.

All in all, the cost to implement some basic fraud prevention initiatives in a company can be small, especially when it's compared to the amount of money that could be lost to fraud. The long-term benefits of fraud prevention activities are undeniable, and companies can achieve immediate savings by reducing the risk of fraud.

Tracy L. Coenen, CPA, MBA, CFE performs performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.


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As a business owner, you should carefully consider the advantages of establishing an employer-sponsored retirement plan. Generally, you're allowed a deduction for contributions you make to an employer-sponsored retirement plan. In return, however, you're required to include certain employees in the plan and to give a portion of the contributions you make to those participating employees. Nevertheless, a retirement plan can provide you with a tax-advantaged method to save funds for your own retirement, while providing your employees with a powerful and appreciated benefit.

Types of Plans



There are several types of retirement plans to choose from, and each type of plan has advantages and disadvantages. This discussion covers the most popular plans. You should also know that the law may permit you to have more than one retirement plan, and with sophisticated planning, a combination of plans might best suit your business's needs.

Profit-sharing Plans

Profit-sharing plans are among the most popular employer-sponsored retirement plans. These straightforward plans allow you, as an employer, to make a contribution that is spread among the plan participants. You are not required to make an annual contribution in any given year. However, contributions must be made on a regular basis.

With a profit-sharing plan, a separate account is established for each plan participant, and contributions are allocated to each participant based on the plan's formula (this formula can be amended from time to time). As with all retirement plans, the contributions must be prudently invested. Each participant's account must also be credited with his or her share of investment income (or loss).

For 2007, no individual is allowed to receive contributions for his or her account that exceed the lesser of 100 percent of his or her earnings for that year or $45,000. Your total deductible contributions to a profit-sharing plan may not exceed 25 percent of the total compensation of all the plan participants in that year. So, if there were four plan participants each earning $50,000, your total deductible contribution to the plan could not exceed $50,000 ($50,000 x 4 = $200,000; $200,000 x 25% = $50,000). (When calculating your deductible contribution, you can only count compensation up to $225,000 (in 2007) for any individual employee.)

401(k) Plans

A type of deferred compensation plan, and now the most popular type of plan by far, the 401(k) plan allows contributions to be funded by the participants themselves, rather than by the employer. Employees elect to forgo a portion of their salary and have it put in the plan instead.

The requirements for 401(k) plans are complicated, and several tests must be met for the plan to remain in force. For example, the higher paid employees' deferral percentage cannot be disproportionate to the rank-and-file's percentage of compensation deferred.

These plans can be extremely expensive to administer, but the employer's contribution cost is generally very small (employers often offer to match employee deferrals as an incentive for employees to participate). Thus, in the long run, 401(k) plans tend to be relatively inexpensive for the employer.

If you don't have any employees (or your spouse is your only employee) a 401(k) plan (an "individual 401(k)" or "solo 401(k)" plan) may be especially attractive, Because you have no employees, you won't need to perform discrimination testing, and your plan will be exempt from the requirements of the Employee Retirement Income Security Act of 1974 (ERISA). You can make a deductible profit-sharing contribution of up to 25% of pay (to $225,000) on your own behalf in 2007, and in addition you can make deductible pre-tax contributions of up to $15,500 in 2007 (plus an additional $5,000 of pre-tax catch-up contributions if you're age 50 or older). However, total annual additions to your account in 2007 can't exceed $45,000 (plus any age-50 catch-up contributions).

Note: Beginning in 2006, a 401(k) plan can let employees designate all or part of their elective deferrals as Roth 401(k) contributions. Roth 401(k) contributions are made on an after-tax basis, just like Roth IRA contributions. Unlike pre-tax contributions to a 401(k) plan, there's no up-front tax benefit--contributions are deducted from pay and transferred to the plan after taxes are calculated. Because taxes have already been paid on these amounts, a distribution of Roth 401(k) contributions is always free from federal income tax. And all earnings on Roth 401(k) contributions are free from federal income tax if received in a "qualified distribution."

Note: 401(k) plans are generally established as part of a profit-sharing plan.

Money Purchase Pension Plans

Money purchase pension plans are similar to profit-sharing plans, but employers are required to make an annual contribution. Participants receive their respective share according to the plan document's formula.

As with profit-sharing plans, money purchase pension plans cap individual contributions at 100 percent of earnings or $45,000 annually (in 2007), while employers are allowed to make deductible contributions up to 25 percent of the total compensation of all plan participants. (To go back to the previous example, the total deductible contribution would again be $50,000: ($50,000 x 4) x 25% = $50,000.)

Like profit-sharing plans, money purchase pension plans are relatively straightforward and inexpensive to maintain. However, they are less popular than profit-sharing or 401(k) plans because of the annual contribution requirement.

Defined Benefit Plans

By far the most sophisticated type of retirement plan, a defined benefit program sets out a formula that defines how much each participant will receive annually after retirement if he or she works until retirement age. This is generally stated as a percentage of pay, and can be as much as 100 percent of final average pay at retirement.

An actuary certifies how much will be required each year to fund the projected retirement payments for all employees. The employer then must make the contribution based on the actuarial determination. In 2007, the maximum annual retirement benefit an individual may receive is $180,000 or 100 percent of final average pay at retirement.

Unlike defined contribution plans, there is no limit on the contribution. The employer's total contribution is based on the projected benefits. Therefore, defined benefit plans potentially offer the largest contribution deduction and the highest retirement benefits to business owners.

SIMPLE IRA Retirement Plans

Actually a sophisticated type of individual retirement account (IRA), the SIMPLE (Savings Incentive Match Plan for Employees) IRA plan allows employees to defer up to $10,500 (for 2007) of annual compensation by contributing it to an IRA. In addition, employees age 50 and over may make an extra "catch-up" contribution of $2,500 for 2007. Employers are required to match deferrals, up to 3 percent of the contributing employee's wages (or make a fixed contribution of 2 percent to the accounts of all participating employees whether or not they defer to the SIMPLE plan).

SIMPLE plans work much like 401(k) plans, but do not have all the testing requirements. So, they're cheaper to maintain. There are several drawbacks, however. First, all contributions are immediately vested, meaning any money contributed by the employer immediately belongs to the employee (employer contributions are usually "earned" over a period of years in other retirement plans). Second, the amount of contributions the highly paid employees (usually the owners) can receive is severely limited compared to other plans. Finally, the employer cannot maintain any other retirement plans. SIMPLE plans cannot be utilized by employers with more than 100 employees.

Other Plans

The above sections are not exhaustive, but represent the most popular plans in use today. Recent tax law changes have given retirement plan professionals new and creative ways to write plan formulas and combine different types of plans, in order to maximize contributions and benefits for higher paid employees.

Finding a Plan That's Right for You

If you are considering a retirement plan for your business, ask a plan professional to help you determine what works best for you and your business needs. The rules regarding employer-sponsored retirement plans are very complex and easy to misinterpret. In addition, even after you've decided on a specific type of plan, you will often have a number of options in terms of how the plan is designed and operated. These options can have a significant and direct impact on the number of employees that have to be covered, the amount of contributions that have to be made, and the way those contributions are allocated (for example, the amount that is allocated to you, as an owner).

Reprinted with permission from The American Institute of Certified Public Accountants (AICPA). Copyright 2007. All rights reserved.

© 2006 The American Institute of Certified Public Accountants.

Views expressed by AICPA employees are expressed for purposes of deliberation, providing member services and other purposes exclusive of practicing public accounting. Views expressed by AICPA staff do not necessarily represent the official views of the AICPA unless otherwise noted. Official AICPA positions are determined through certain specific committee procedures, due process and deliberation.

The information contained in this document, including all instructions, cautions, and regulatory approvals and certifications, is provided by AICPA and has not been independently verified or tested by Dell. All questions or comments relating to such statements or claims should be directed to AICPA


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