Many employers have questions about non-taxable yet business deductable gifts for their valued employees. Listed below are general guidelines; I encourage you to call me at (770)461-1115 before you write any checks. Especially note the awards and prizes!

Gifts, Awards, and Prizes

Because the IRS basically does not believe that employers can act with a detached and disinterested generosity towards their employees, most gifts that you give to your employees are presumed to be compensatory in nature. Accordingly, unless you can show that a gift is connected with an event that's totally unrelated to your business (for example, an employee's wedding), gifts to your employees are considered taxable wages for payroll tax purposes. Gifts of property are treated no differently from monetary gifts.

Christmas gift exception. During the Christmas holiday season, the IRS does allow you to show a little generosity towards your employees without incurring additional payroll tax liabilities. Christmas gifts are not considered taxable wages if the gifts are items of property having nominal value (for example, a turkey or a ham). This exception does not apply to small gifts of cash.

Awards and prizes. Employee prizes and awards also are generally considered taxable wages, on the theory that you present them in return for an employee's performance or services. However, there are two limited circumstances under which you may be relieved from payroll tax obligations on noncash awards:

• An item of property that is valued at no more than $400 will not be considered taxable wages if it is given to an employee as a length-of-service or safety-achievement award.
• When you give a noncash award to a retail commission salesperson whom you ordinarily pay only cash commissions, you can elect not to withhold federal income taxes with respect to the award. However, you will remain responsible for FICA taxes, unemployment taxes, and possibly state income taxes on the award.

1. Deterring Employee Theft
2. Stealing Bank Statements
3. Warning Signals of the Possible Existence of Fraud
4. Fraud - Suspicious Behavior
5. Ways Cash Disappears
6. Keep your financial information secret!
7. Bank wrongly declines your credit card cash advance
8. Foreign Credit Card Scam
9. Are securer checks worth the costs?

Deterring Employee Theft- With computers and laser jet printers, it is easier than ever for people to make documents that look legitimate. Computer checks can be printed that bear your bank account number. Elaborate fake invoices can be created. Depending upon where the opportunist is in a company, a scam can be created to do almost anything, to shuffle money off, hide income, increase expenses.

For small businesses, one of the easiest ways to head off checks going to the wrong places is for the owner to be the first one to open the bank statements. Before anyone else has a chance to touch the checks and the bank statement, the bank statements should be scanned for unusual transfers and transactions and the checks should be scanned for unusual payees and payments. One of the hardest scams to catch is when forged checks are made by the same person who does the bank reconciliation. I have even seen where a person altered a bank statement to hide the forged check. It appeared that the person cut the line out of the bank statement where the check number and amount appeared and then photocopied the statement so that it looked like nothing was missing. Obviously, the person destroyed the original bank statements and the forged checks. The bank did not catch the forged checks because they did not check the payor's signiture.

The appearance of tight controls over cash receipts and disbursements makes opportunists think twice. For cash coming in, if possible, have the receiving and depositing of cash and checks handled by someone who has nothing to do with the accounting system, especially accounts receivable. Thus, if a customer pays and that payment is stolen, it is likely to surface when you go to collect the receivable. Where a cash register is involved, the Hip Pocket National Bank is very strong. Since many types of transactions can flow through the cash register, errors are common. Lets face it, some employees have trouble making change. This makes it hard to determine thefts. As you know, the No Sale is the most common; accepting the customer's cash, pressing the No Sale button, when the customer leaves, the cash from the sale is taken. Having more than one employee working sometimes help. Also, ask a friend to drop by the store with an open eye. Most often, the opportunist just takes inventory. Even when you reconcile the inventory to your records, it can be quite hard to determine what has been stolen by whom. Ringing up sales by using Uniform Price Coding (bar labels) and running a perpetual inventory system can help with this.

Finally, you can't think of every possibility, so spread the risk by having a fidelity bond.

Stealing Bank Statements

There is a theft scheme that involves stealing your bank statement. The areas that have been hit have been the secluded countryside. The opportunist starts by finding a secluded mail box in the country; one he or she can riffle through without being noticed. They will look for a bank statement and steal it. They will call your bank and have the address changed to a fictitious address. Next, they will go to a bank branch, with a story, like their wife is about to deliver a baby and they would like to make a withdrawal on the account. They are successful.

Since some bank statements contain vital information, like social security numbers, the opportunist can be prepared to answer the bank's verification questions. Some have gone as far as to have fake driver licenses made with the victim's name on it. Since the bank statement is rerouted, it could be a while before the victim discovers the scheme.

Obviously, one of the best ways to head off this type of scheme is to have your important mail go to a Post Office Box.

Warning Signals Of The Possible Existence Of Fraud

The AICPA's standing subcommittee on methods, perpetration, and detection of fraud has compiled the following preliminary list of conditions or events which may signal the possible existence of a fraud situation.

1. Highly domineering senior management and one or more of the following, or similar, conditions are present:
• An ineffective board of directors and/or audit committee.
• Indications of management override of significant international controls.
• Compensation of significant stock options tied to reported performance or to a specific transaction over which senior management has actual or implied control.
2. Deterioration of quality of earnings evidenced by:
• Decline in the volume or quality of sales for example, increased credit risk or sales at or below cost.
• Significant changes in business practices.
• Excessive interest by senior management in the earnings per share effect of accounting alternatives.
3. Business conditions that may create unusual pressures:
• Inadequate working capital.
• Rapid expansion of a product or business line markedly in excess of industry averages.
• A major investment of the company's resources in an industry noted for rapid change, such as high tech.
4. A complex corporate structure where the complexity does not appear to be warranted by the company's operations or size.
5. Widely dispersed business locations accompanied by highly decentralized management with inadequate responsibility reporting system.
6. Understaffing which appears to require certain employees to work unusual hours, to forgo vacations and/or put in substantial overtime.
7. High turnover rate in key financial positions such as treasurer and/or controller.
8. Frequent changes of auditors or legal counsel.
9. Known material weaknesses in internal control which could practically be corrected but remain uncorrected, such as:
• Access to computer equipment or electronic data entry devised is not adequately controlled.
• Incompatible duties remain combined.
10. Material transactions with related parties exist or there are transactions that may involve conflicts of interest.
11. Premature announcements of operating results or future (positive) expectations.
12. Analytical review procedures disclosing significant fluctuations which cannot be reasonably explained, for example:
• Material account balances.
• Financial or operational interrelationships.
• Physical inventory variances.
• Inventory turnover rates.
13. Large or unusual transactions, particularly at year-end, with material affect on earnings.
14. Unusually large payments in relation to services provided in the ordinary course of business by lawyers, consultants, agents, and others (including employees).
15. Difficulty in obtaining audit evidence with respect to:
• Unusual or unexplained entries.
• Incomplete or missing documentation and/or authorization.
• Alterations in documentation or accounts.
16. In the performance of an examination of financial statements unforeseen problems are encountered, for instance:
• Client pressures to complete audit in an unusually short time or under difficult conditions.
• Sudden delay situations.
• Evasive or unreasonable responses of management to audit inquiries.

Fraud - Suspicious Behavior

People who are stealing from their employer will sometimes give clues that, in and of itself, do not mean anything, but should raise suspicion. Care must be taken as this is a very litigious and emotional area. A wrongly suspected individual can sue...a rightly suspected individual can sue. One such horror story was told to me by a owner of a convenience store. He caught red handed a young male employee stealing and fired him on the spot. That day, both the employee's parents confronted the store owner, telling that the owner was wrong and mistaken, and treating to sue because the owner's allegations could ruin this young man's future. If you have a suspicion, consult with your attorney.

The following is a list of suspicious situations:

• Bill collectors call your business trying to find an employee.
• An employee's standard of living increases, but does not have the earnings to support it. Employee goes on expensive vacations; buys a luxury car; buys a vacation house.
• Employee refuses to go on vacation.
• Employee performs bank reconciliation after work hours or at home.

Ways Cash Disappears

The true test of a man's morality is what would he do if he knew he would not get caught. This proverb is probably older than time immemorial with greed being the cornerstone of its origin. Today, it seems as if we have gloried greed. There are countless songs, movies, television programs, computer programs devoted to the wonderful feeling that apparently exists when one obtains more than others.

We all know the financial burdens placed upon us. And, it is easy to wish for these burdens to be washed away by a winning lottery ticket. For some, their lottery is an opportunistic moment, a personal injury in a car accident, a customer to short-change, a business with loose cash controls.

Ways cash can be stolen:

• In a small doctor's office, right after the doctor finished with the patient, the bookkeeper would offer a 5% discount if the patient paid with cash. The patient's bill and the cash paid was never recorded.
• In another doctor's office, the bookkeeper pocketed part of the cash payments and recorded a credit to the patient's account as a write off or insurance adjustment.
• A person who worked solely in accounts payable created a fictitious office supply company and would submit a small invoice to the company.
• A bookkeeper, who prepared the bank reconciliation for an importer got her hands on a company check. She made the checks payable to herself and found someone to forge the signature.
• A bookkeeper, who printed the computer checks, would keep an unprinted check from the check runs. He made the checks out to himself and for personal expenses. The bookkeeper also did the bank reconciliation and kept the general ledger.
• At an automobile service center, the manager would write up the service tickets. One of the questions he would ask was, "How are you going to pay?" If the customer said "cash," the manager would pull a service ticket from the bottom of his clipboard. Since all service tickets were pre-numbered and accounted for each day, the manager used a service ticket for the cash sales that had a number no one would look for. The cash from these sales were pocketed and the service invoices were destroyed.
• A maintenance person submitted petty cash vouchers for hardware purchases for his own house.

Keep your financial information secret!

All a person needs to steal your credit is your name, social security number and birth date. That is why you should be very reserved in giving out your social security number. Do not give it out to people who call you on the telephone. Do not give it out unless it is vital to the transaction you are involved in.

Some credit card companies accept applications over the phone. If you receive one of these calls, ask the card company to send you the application.

If you decide to throw your bank statements, credit card statements or income tax returns away, destroy them in some fashion, like a shredder. Keep this in mind for any document that contains your social security number.

If there is no lock on your mail box, pick up your mail near to delivery or get a Post Office Box.

Bank wrongly declines your credit card cash advance

Anytime that your credit card is declined is an embarrassing situation. Sometimes, it is without merit. Due to the fraud involved with credit cards, banks are very careful and do not mind erring when it comes to declining credit.

Banks usually have a special department that handle credit card transactions. The department works as a liaison between your teller and your credit card company. If your card is declined by the swipe terminal, the teller is usually prompted to call their special department. Once on the phone, this department should call your credit card company and attempt to confirm your credit. Sometimes, the department will access your credit card company's automated account system and listen for the cash advance line of credit limit. If the automated system does not specifically state the cash advance line, the bank will decline your request for an advance.

Of course, the bank will not give any reason for the decline. So, you are left to figure out what's happening. Ask the teller to find out if they spoke to an actual person at your credit card company or the automated system. You want them to speak with an actual person. In addition, call your credit card company; most banks will let you use their phone. Confirm that your cash advance line of credit is available. If possible, see if your customer representative will talk to the teller so that they can work out the procedures for authorizing the transaction.

Foreign Credit Card Scam

In some foreign countries, opportunist are randomly making up credit card numbers. They test them out and if they work, they charge up a storm. Since the victims are random, it is impossible to protect yourself against this type of crime.

If you notice any unauthorized transactions on your credit card, immediately contact your credit card company. Most credit card companies absorb these unauthorized charges. The maximum liability that you can incur, by U.S. Federal Law, is $50.

Are securer checks worth the costs?

Do you have those new checks with the micro line printing, the pseudo water marks and the "Void" when photocopied? If you paid extra for them, they probably were not worth the costs. The reason, check processing centers and your bank do not look for those security features when they process your checks.

To make matters worse, all a criminal needs is a copy of your check. With today's laser printers and magnetic toner, a criminal can forge a check or create a demand draft, which does not need your signature.

Safety tips:

• Reconcile your bank account each month;
• Report errors and irregularities with your account to your bank;
• Destroy old checks before throwing them away;
• Keep your checks in a secure place; and
• Do not give out your bank account information.