Finding Small Business Fraud with James Ratley

There are a shocking amount of businesses that ultimately fail because of fraud. Many managers and business owners are unaware of their losses because they do not have the systems in place to look for fraud and it may not be their primary concern.

Today’s guest is James Ratley. Jim graduated from the University of Texas at Dallas with a bachelor’s degree in Business Administration. In 1971, he joined the Dallas Police Department as a police officer. He was on numerous task forces with a concentration on major fraud cases. He joined a major forensic accounting practice and was in charge of fraud investigations.

In 1988, he was named the Program Director of The Association of Certified Fraud Examiners and in 2006, became the President. In 2011, he became the CEO and he retired in 2018 after 30 years there. James has been an adjunct professor, published author, and named by Accounting Today as one of the top influencers multiple times.

Show Notes:

• [1:14] - James shares his background and the way his career panned out over 30 years.
• [3:35] - When the ACFE was established, there was no information or education around it at all.
• [5:09] - The average organization loses 5% of their revenue to fraud. Out of every ten people hired, statistically, six of them will steal from you.
• [6:46] - Fraud can be prevented and strategies to reduce fraud are typically inexpensive.
• [8:40] - It’s important for business owners not to be afraid to call it fraud.
• [10:25] - Fraud perpetrators believe they deserve what they’ve taken.
• [13:26] - It’s important for businesses to have strong management and leadership. Training is crucial.
• [14:18] - James discusses the most common types of fraud and how even the seemingly minor things could be detrimental.
• [18:24] - Fraud perpetrators are really good at hiding what they are doing and making the business owners believe it could never be them.
• [20:15] - Another strategy is to separate tasks out and be strict about them.
• [21:37] - Surprise cash counts is another good strategy.
• [23:13] - There are no small frauds, only frauds that have not had time to reach maturity.
• [25:44] - You impact rationalization through education.
• [29:16] - James lists some of the red flags that could indicate something more going on.
• [31:31] - There should be policies and regulations that purchasing officers are held to.
• [36:30] - Auditors must be completely independent.
• [40:10] - Some business owners will deny the problem is happening because it is hard to deal with and accept that someone they trust could be stealing.
• [44:35] - Many small organizations go out of business due to operating at a loss. Most of the time this is because of fraud.
• [47:25] - Never judge someone by the standards you have for yourself.
• [51:12] - Something to remember is that most fraudsters will steal in even numbers.
• [53:11] - In most cases that James has worked, the manager had seen all the signs, but never thought anything about it.

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