Wine Industry Articles
Fraud in My Winery?
2009 Harvest Issue of Canadian Grapes to Wine
Employee theft of company assets represents over 86% of frauds
The recent news about an employee defrauding Andrew Peller Ltd of more than $7 million over 11 years was a shock to the wine industry. Although this is difficult to imagine, your winery operation may be vulnerable to internal fraud. Even the most trusted employees could become tempted if facing financial difficulties or addictions, as was the case above.
Considering the potential losses, winery owners must make fraud prevention a priority. The financial costs, emotional impact on staff and possible lost productivity can be crippling to businesses, especially if small or family-owned.
How to prevent fraud
Lead by example. A casual attitude by management toward rules and regulations could foster an environment that allows fraudulent activity to occur unnoticed.
Hire the right employees. Background checks, including criminal records, are critical for anyone handling inventory and money.
Maintain strong internal controls. If employees know there are set checks and balances, they are less likely to commit fraud. Some of the basics are:
- Know how much inventory you have on-hand, where it’s stored and check for shrinkage frequently.
- An employee with signing authority should not balance the bank account. Rethink a signature stamp for cheque signing. Either mail bank statements to your home or give only the owner online access.
- Ensure all expenditures are approved, including employee expense accounts and company credit cards.
- In a retail situation, your point of sale machine provides daily reports of receipts. Check these reports to daily deposits to ensure they balance.
- Check payroll information before paycheques are issued.
- Implement physical access restrictions to your valuable inventory and financial information, such as locked doors, security cameras, user IDs and passwords.
- Review customer billings, account receivables and write-offs.
Establish an anonymous reporting system. The best method for catching fraud is getting tips from other employees, vendors or customers. An anonymous tip line would make reluctant employees more likely to blow the whistle.
Create a fraud policy. Let employees know what to do if they suspect fraud and what actions the company will take if it suspects or determines that fraud has been committed. Discuss this during employee orientation and training programs, and post the policy in lunch rooms.
Enforce mandatory vacations. No employee should be so critical that someone else can’t work in his/her absence. Employee reluctance to take vacation should be a red flag.
Create a positive work environment. Fair employment practices, open communication, and positive recognition help reduce the likelihood of internal fraud and theft.
Investigate every incident. A timely and thorough review of policy violations, allegations or warning signs of fraud will clarify the facts.
What to do if you discover or suspect fraud
Once fraud is discovered, taking appropriate action is critical. Begin by effectively gathering the information needed to stop the fraud and recoup losses. Generally, this means quietly enlisting your accountant and lawyer’s help. Many employees are ashamed of their actions and will agree to a deal to avoid prosecution. In other instances, police assistance would be required. A business owner must tread carefully to avoid losing the chance to recoup lost money or prosecute the perpetrator and, in the worst case scenario, to avoid being sued for wrongful dismissal.
To learn more about how you can protect yourself from fraud, contact your BDO advisor.
BDO’s Wine Services Team may be reached at 250-763-6700 or 1-800-928-3307, or by email at: wineries@bdo.ca. www.bdo.ca/wineries
