According to a study, businesses from all across the globe lose significant revenue each year to different levels of accounting fraud. Employees and accountants have been using clever tactics to steal from their employers, which is making businesses lose about $350 billion in annual profits. In the US alone, 16,000 fraud cases were reported last year, with a 16% increase from the previous year and an expected increase of 20% in the upcoming year.
Catching Stealing Employees—the Right Way!
Every business has devised its own way of preventing accounting fraud by implementing specific theft prevention policies and procedures. Theft prevention tools and techniques, coupled with effective preventive measures, can never guarantee that fraud will not be committed. According to a study, trusted employees are far more apt to steal from you than those who have been recently employed.
Fraudulent activities or accounting fraud by employee(s) can be damaging to the company as it may kick a business out of the competitive race or result in the downfall of the entire organization. Also, it can incur high legal costs and negatively impact on company’s reputation and brand name. For protection, hiring an experienced auditor or agency that has wider accounting and auditing knowledge and skills is advised. The use of technology and the implementation of the right fraud prevention practices can help you catch stealing employees or accounting fraud.
Accounting Fraud: Drivers and Considerations
As per the 10-10-80 rule, 10% of employees responsible for handling critical affairs of the business, such as bookkeeping and accounting, would never intend to steal from the company. 10% will steal when there is an opportunity. And 80% of employees are those who usually evaluate the opportunity at hand and compare it with their needs and desires and then decide whether or not to steal from the company. Perhaps this 80% is where companies can capitalize on and prevent their employees from stealing from them by using various preventive measures, modern tools, and techniques.
Studies also reveal that most accounting fraud that occurs has little to do with opportunity but more with motivation to make a deliberate attempt to steal from the company when the employees feel that they are discouraged, undervalued, or underpaid. Trust me! A dissatisfied employee is more likely to engage in criminal behavior than those who have just joined the company. Why? When efforts are not valued or compensated, fraud becomes a habit of the employees, especially those who have been waiting years just to get an official acknowledgment from the company in terms of promotions, perks and bonuses, and pay-increase.
The Fraud Triangle
So this makes it clear that an accounting fraud revolves around opportunity, pressure, and rationalization. Organizations need to come up with a sound fraud prevention plan if they expect to reduce fraudulent activities in the company.
Accounting Fraud: Red Flags
One job of an accounting professional is to find fraudulent activities or accounting fraud during an audit. Any accounting discrepancies found in the audit may require a more in-depth examination. Warning signs of fraud may include missing documents, excessive complaints, inventory shortages, and excess purchases. They also include duplicate payments, changes in an accountant’s working behavior, and spending habits. The most important factor is to look out for red flags while also balancing trust in your employees.
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