The Australian business community is still reeling from the news that a Clive Peeters employee managed to embezzle $20m before anyone noticed. The obvious question arises: is anyone safe from this kind of fraud?
How is it that a company the size of Clive Peeters didn’t miss an amount totalling more than it’s entire pre-tax earnings for the 2008 financial year – until it was brought to their attention by their accountant?
As was reported last week, even less than a month ago when the discovery was made, the full extent of the damage wasn’t even remotely understood. At that point it was believed to be the still rather staggering amount of $2m missing.
Where could the missing $20m hide in the company’s accounts? Well, that’s for the forensic accountants to decide – but there are two ways a company can begin to protect itself from this kind of malicious damage from within.
Firstly, one word – benchmark! There’s an established benchmark for almost any measurement, in any industry. Benchmarks being represented as percentages make them an effective measurement and comparison tool of the performance of a business. Whether management want to know the benchmark on gross margin for an electrical contracting business or the benchmark on food costs in a restaurant, it’s all available for a business owner to discover and discuss with a management accounting professional.
Without knowing the full details of Clive Peeters’ internal workings, no concrete conclusions can or should be drawn. However, we can hypothesise that if management had looked at benchmarks for white goods and electrical retailers, it’s altogether possible they may have noticed that the company was heavily under-performing in one or two areas – examples could have included their marketing costs or overheads. Surely $20m can’t be hidden without it showing up in one or two of the ways business performance is measured and managed? This, in turn, could have set off the alarm bells for their management team – long before the $20m was syphoned off.
Secondly, budgets for both the profit and loss and the balance sheet would mean management would know much sooner if key performance indicators were getting off track. Cashflow forecasts would need to be updated on a regular basis to show you where peaks and troughs will occur. If a company’s actual figures, versus their budget figures, for anything other than revenue start to head in the wrong direction, it could be time to take a closer look.
Lesley-Ann Trow is Marketing & Communications manager at CAD Partners, a nation-wide mobile CFO “On-Call”/financial control/business accounting service for SME owners.