Is Your Funeral Home Susceptible to Fraud?
Posted April 14, 2021
9 min read
Tom, a Funeral Home owner in Texas, hadn’t even had his first cup of coffee when a man showed up at his door.
Much to Tom’s surprise, the man flashed his OSHA badge and said he was there for an inspection.
Not wanting to upset the OSHA inspector with too many questions, Tom welcomed the rep in. The officer made his way around the funeral home, and he eventually informed Tom that he had found several violations—in fact he had found six. The inspector went on to say the violations would result in penalties amounting to nearly $50,000.
Tom looked over the violations. He was surprised that there had been any issues, but he was concerned about how he was going to afford the penalty for the alleged hazards. “This is going to put us out of business!” he said.
The OSHA rep explained that Tom had several options. Due to the nature of the safety hazards, one option was he could settle the penalty. Doing so would ultimately reduce the penalty to closer to $6,000, the OSHA rep said.
Tom’s problems would be mostly resolved, but the payment to OSHA would have to be made immediately.
Still feeling uneasy, Tom accepted the offer. He rushed to get his checkbook and wrote out the check to OSHA for $6,000.
As soon as the man left with the check, he got in his car and deposited the check immediately.
The problem: that wasn’t an OSHA compliance officer—and that wasn’t an OSHA inspection, either.
Rather, before Tom has even had his first cup of coffee, he had lost thousands of dollars to an OSHA impersonator who has deposited the money into an offshore account.
Preying on Kindness
Although the name of the victim has been changed in this story, it’s just one example of how quickly fraud can happen today. “In my opinion, Funeral Directors are easy targets for fraud because we’re pillars of the community,” explains Dr. David Penepent, a Funeral Director who is also the Funeral Services Administration Program Director and a professor of mortuary science at the State University of New York at Canton (SUNY Canton).
“People who commit fraud know how to attack the ‘weakness’ of Funeral Directors. This is one example of that kind of fraud,” says David.
With more than two decades of experience in the funeral profession, we interviewed David to uncover what funeral professionals ought to know about fraud prevention today. Continue reading to learn 4 questions you can be asking to evaluate how vulnerable you may be to fraud and theft.
Question #1: Do You Have a System in Place that Can Help Prevent or Detect a Potential Problem?
In the case of the person posing as an OSHA inspector, one of the most effective ways to prevent this type of fraud is to make sure you—and all staff—know what steps to take if a compliance officer walks through the door.
First, staff should know that they are legally allowed to ask for and verify the credentials (government photo identification, and not a driver’s license) of the OSHA rep, explains David. Empower staff to know this is the right first step to take if an OSHA rep arrives unannounced at your firm.
As a second step, you can also call your OSHA office and ask, “Did you send an inspector to my door?” A fake OSHA rep will not want you to call your OSHA office to confirm their visit, explains David, so this is an effective system to have in place to reduce the chance of fraud happening.
Additionally, ensure staff are educated on potential signs someone may be impersonating a federal official. For example, OSHA compliance officers do not issue citations when they are at the worksite. They also do not ever assess fines at your place of work. Put simply, only impersonators are going to issue penalties/citations at your Funeral Home.
Question #2: Do You Investigate All Red Flags?
Another example David shares: a Funeral Home owner who “ignored how they were commonly close to breaking even, even when they were having ‘up’ years.” This discrepancy should have been something the Funeral Home owner investigated further, but he didn’t.
Then one day his long-time secretary got very, very ill. For the first time in years, she was out for an entire week. While she was out sick, invoices and other work started to pile up.
Not knowing how long the secretary would be out, the Funeral Home owner decided to start to sort through the invoices to begin to organize and pay them.
After digging into the invoices, he saw unusual activity tied to a vendor.
“He saw that the secretary was writing a check not only for the vendor company, but she was also writing a check for herself, and she coded it as if it was for the company. So she was double invoicing and writing a check for herself. Then, in the computer, she was putting the company’s name for the check that she wrote to herself,” explains David.
Realizing his employee had been stealing from the Funeral Home, the Funeral Home owner had his accountant perform an internal audit. They discovered that over a period of five years the secretary had stolen more than $300,000 from the business.
“She came to work on Monday after being sick. And when she walked in the door, there was the Sheriff and he had her arrested,” says David.
The story presents three key lessons. First, don’t ignore something that is unexplained or isn’t adding up, because it could be an indicator of fraud or theft. These are red flags that should never be ignored, says David. In this case, the Funeral Home owner ignored his hunch about the bottom line, in part due to how he trusted his staff so much.
Second, the Funeral Home owner was too disconnected from the financials, and gave one person sole control of them. “Since the secretary had control of the books, she was able to hide things. When you don’t have checks and balances in your funeral home to catch those types of fraud from happening, or to prevent it from happening, then Funeral Directors can become an easy target,” says David.
Third, David recommends that Funeral Home owners work with their insurance company to determine what can be done to further protect their assets. For example, one option is to ensure their insurance policy bonds the owner against employee theft.
Question #3: Do You Have Internal Controls to Minimize Malfeasance?
As the last example highlights, the goal for Funeral Directors should be to minimize opportunities for fraud to occur. Most people believe their employees are honest and loyal, but some employees can take advantage of that weakness. “It might start off innocent enough for an employee. They may have wasted their last paycheck at the casino and so they make the decision to take a short-term loan from the business,” says David.
“What happens is that they get away with it once, and it goes undetected. Then they try it a second time, and still, it goes undetected. And then they continue to do it. They get more and more confident that they won’t get caught.” David says that’s why you want to create an environment that eliminates or minimizes opportunities for any type of fraud or theft.
Examples of a few steps you can take to minimize the opportunities for theft include:
Regularly checking on your financials. Sometimes Funeral Home owners will completely rely on someone else to run the business. The problem is that your financials need and deserve scrutiny, says David. A tool like CRäKN helps for this oversight to happen in real-time or near real-time, which is important for effective financial analysis.
Be cautious with who controls the cash. If you aren’t already, consider separating who handles deposits and who handles record keeping/reconciling. If those duties aren’t segregated, you are putting your firm at increased risk.
Eliminate checks where you can. Checks are a major source of fraud today, so minimize in places you can.
Know your vendors and watch the payments to them. Do you know all your vendors? Do you see the payments commonly made to them? Investigate anything that looks unusual.
Question #4: Are You Continuing to Educate Yourself on Reports of Small Business Fraud?
Unfortunately, many scammers or thieves aim to pull at the heart strings of Funeral Directors. One of the most effective ways to avoid deception intended to take advantage of funeral professionals’ compassion and empathy is to stay informed on the latest scams and tactics used by scammers.
That’s not always a simple task, but it can help you—and your staff, too—stay alert and be more conscious of signs of any theft or scam.
Take Steps to Reduce Your Vulnerability to Fraud
All in all, asking these questions can help you evaluate what kinds of risk your Funeral Home may have today, and how you can reduce the chances for any fraud or theft in the future. Remember, you can continue to lead with trust, but still have a framework of systems and controls to protect yourself and the business.
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