Financial frauds among small companies sniffed out by CPAs

The huge frauds of 2002 Enron, WorldCom and the like rattled the stock markets and led to the Sarbanes-Oxley controls on publicly held companies.

But the frauds also rattled owners of small business, and that's created an opportunity for Muckel Anderson CPAs, a Reno-based company that focuses much of its practice on privately held smaller firms.

The opportunity: A service that provides a close examination of a company's financial controls to spot weak areas.

The examination is separate from a traditional financial audit.

While Muckel Anderson still is learning how to market the service, it's drawn strong interest from the company's existing clients, says Lauren Sankovich, a CPA who is one of the firm's managers.

While media attention in recent years focused on frauds in major companies, Sankovich notes that financial fraud is far more common in small outfits.

For starters, small companies typically ask individual employees to handle lots of different jobs during a day.

Because duties aren't segregated, there are greater opportunities for employees to steal undetected.

At the same time, Sankovich says, owners of small companies often develop friendships with their workers trust that can be violated easily if an employee decides to steal.

In a traditional audit, which typically is undertaken by a privately held company only if it's required by a lender, auditors usually do no more than ask about weaknesses in financial controls.

When they're engaged to look for the possibility of fraud, however,Muckel Anderson accountants take things a large step farther they go out and actively look for weak spots.

And that work gets the juices flowing for an auditor.

"You have to be very creative to figure out the best possible way to get the information you need," says Sankovich.

While discoveries of fraud are rare, she says business owners generally can use the auditor's reports to strengthen their operations.

"Every small business can use help," she says."There's always a way to improve their internal controls."

While the program has been well accepted among existing clients of Muckel Anderson, Sankovich acknowledges the firm still hasn't hit on a winning strategy to market it elsewhere.

The firm has done some direct-mail marketing to new businesses, she says, and also has begun to spotlight fraud audits in brochures and other marketing materials.