Farm Fraud Is for Real

When your profit margin is razor thin or nonexistent, you sure can't afford losing funds to fraud, theft, or overcharges.

Most business owners don't think about those risks, until they receive a hard knock. As an auditor, I've seen dozens of ways that people steal and commit fraud, and it's my job to help put controls in place to stop them.

There are things that can happen around your farming operation. Be aware and watch out for fraudulent activity.

"Trust but verify" was one of Ronald Reagan's favorite sayings. One thing I hear over and over again is, "I don't have to worry about fraud because I trust everyone I do business with."

Well, the board at the city of Dixon, Illinois, had absolute faith in the city comptroller who stole $53.7 million over 20 years.

It's the people we trust the most who have an opportunity to steal. You're not watching them. You're watching the ones you don't trust. If one of your trusted vendors asks why you're recounting those bags of seed, just tell him that you don't trust anyone 100% (not even yourself) because humans make mistakes.

The following are some common fraud, theft, and overcharge situations to watch out for:

Unauthorized credit card use

You normally only need to worry about this if you have employees running around using company credit cards, but it can also happen on charge accounts at your local hardware or farm supply stores. Besides employees, you have to watch out for criminals who swipe your number and start buying things. Examine the monthly charges to make sure they all look legitimate, and start making phone calls if they don't.

Misdirected checks

If you have an outsourced accountant writing your checks, believe it or not, some have been known to pilfer their client's money. One way to do that is to write checks to themselves and then enter the checks in the books as though they were written to someone else, like the power company. One farmer told me that his bookkeeper was using his farm checks to buy personal items at Sam's. Examine your check images from the bank each month and the receipts that back them up.

Siphoning revenue to an extra bank account

Nobody ever thinks about the possibility of someone stealing checks made out to the farm. However, it's not too hard. You just set up another account in the name ABC Farms at a new bank down the street. Then you grab a legitimate ABC Farms crop check out of the mail and deposit it down the street. So, make sure the revenue you expect to receive actually gets to your bank.

Returning parts or supplies for cash refunds

Again, this is something farm hands might do. They can buy an unneeded part for a tractor, and just return it for cash or credit in a couple of weeks. So, make sure you still have all the parts and supplies you paid for.

Getting charged for more than you received

Just a couple days ago, my firm was charged twice for a shipment of toner cartridges. If we hadn't noticed it, we would have paid double. I've seen this happen many times to clients – mostly by mistake. Mistake or not, be on the lookout for two bills for the same product. The same sort of "mistake" could happen by getting charged for 6 tons of lime instead of 4.

Completely fake invoices

Some years ago I received a $120 invoice in the mail for four cases of duct tape. For a minute, it seemed legitimate. Then I decided that there was no way I ordered that much duct tape. The culprit was just sending out fake invoices to random companies, hoping that they would pay. I'm sure many did.