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Stealing men with camouflage facial mask. Climbing the wall of the house to peep
Many organizations and business owners face fraud each year due to their employees or business partners. New entrepreneurial start-ups and small businesses are more vulnerable. The risk of fraud has increased due to the advancement of technology and progressive development of the world into a global village. The increased awareness of technological development and complex organizational structure requires corporations to incorporate internal anti-fraud approaches to combat fraud. According to 2014 research reports by global nation, organizations face 5 % loss due to fraud each year, in which 85 % of serious fraud cases were committed by internal employees. Organizations should develop multi-layered fraud prevention strategies while keeping these statistics in view.

Following are the warning signs to detect fraud and stealing by an accountant.

Change in Habits and Behavior

A good manager should know their employees. They manage their time in order to have frequent conversations with each of them. Good managers are concerned and aware about any type of problems they are facing in their professional or personal lives. The basic information about your employee’s family, life, and habits will help a lot in detecting any change in habits of an employee.

The first sign that your accountant is stealing from you is a change in their habits. Suddenly becoming more proactive in your business, becoming disobedient towards you, or on the phone more frequently are all signs that could be a red flag. Also, if they are suddenly working during times that no supervisor is present, it’s important to keep an eye on their activities.  

Accountant in Bad Waters

Sometimes an accountant under financial stress can turn to fraud to fulfill their needs. The financial crisis could possibly be from the following circumstances: 

Unexpected debt

Sudden debt faced by an accountant due to gambling, drinking, or divorce may be a reason for their fraudulent behavior. An accountant in financial strain may be a potential risk to your business. The financial burdens act as the trigger for theft.

Spending more than earning

If an accountant is spending more than they are earning, it could be a warning sign. Spending excessively on cars, shopping, homes, or taking loans all lead to financial strain and they may think the only way out of this is by committing fraud.

Loose internal controls

A company’s loose internal controls are providing an opportunity for theft. Easy access to assets, checkbooks, or signed stamps lead the embezzler to find it easy to steal.

How to Prevent Fraud

Fraud deterrence is essential for all organizations. The bigger the organization, the more the chances of fraud increase. Fraud is as old as human history and can happen to any company or business despite the organizational structure and the number of workers. Small business managers tend to trust their workers more than bigger organizations. There may be weak internal controls. Fraud effects the finances, image, and morale of the company. All factors decline after a fraudulent case takes place. Most organizations adopt shortcuts for fraud prevention. These tactics largely decrease the opportunity for fraud.

Internal controls

The internal controls of a system and organization define the plans to prevent the company and its assets from any kind of fraud and theft. This system should be revised frequently to analyze its effectiveness. It should be regularly updated according to the new needs, development, and advancements of a company. Internal controls should clearly define accountability and compliance of its employees.

Documentation is the integral part of an internal control system and the most important tactic for fraud prevention. All procedures and transactions should be documented to minimize fraud. Every expense should be approved and countersigned by a managerial level employee so that the validity of receipts and expenses can be ensured. Restrict all physical and technical approaches to documents and information.

Segregation of duties

Clear segregation of duties is crucial for internal control. Distribution of bookkeeping and payments among two or more accountants or bookkeepers helps to prevent fraud.

Outsource accountant

One of the best ways to prevent fraud is to outsource accounting and bookkeeping functions to a third party.

Be systematic

Use accounting software to prevent fraud. QuickBooks handles all the key processes of accounting and prevents fraud. Assign limited rights to all employees according to their job descriptions and responsibilities. Don’t share passwords and logins.

Conclusion

Fraud in business can result in major financial loss, wastage of time and a ruined reputation. The implementation of multilayered fraud risk strategies leads to a successful business that is protected from fraud and theft.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

CONTROL word cloud, business concept
No matter how big or small your business may be, employee theft will continue to eat a significant portion of your annual revenues and profits. It is something that has been around since the beginning of times. No one can deny the fact that businesses are vulnerable to fraud, especially SME entities who suffer excessively huge losses of fraud. SMEs need to ensure effective internal controls in order to create a favorable environment for yielding profits. Although, you may believe that cases of fraud are found in large-scale companies with thousands of employees in multiple locations. The truth is, SMEs are victimized and employees tend to steal from smaller businesses more frequently than larger organizations.

SMEs Are Vulnerable To Employee Fraud

Today, organizations have mixed opinions on how to deal with cases of fraud. Some are very proactive and instill policies for prevention; some are lenient and show more sympathy towards their employees on personal grounds. According to studies, organizations with fewer than 100 employees are more vulnerable to employee fraud as they account for the highest percentage of fraud. The thing is, SMEs are more inclined towards generating sales and profits and care less about maintaining effective internal controls and reviewing their bookkeeping records with a fine tooth comb. Each year, SMEs lose billions of dollars in annual revenues and profits worldwide, which bears testimony to the fact that employee fraud is inevitable and it hurts a business’s integrity.

Fraud Can Be Prevented

With innovative tools, techniques, and practices, fraud prevention and detection is possible. You must choose the right prevention option by making a comprehensive analysis of your business. Obviously, no one knows a business more than its owner and owners have the potential to change the fate of their company. They know their business’s strength and weaknesses and can possibly turn things around in their business’s favor. In organizational setups, SMEs have scarce resources in which they need to ensure whether everything is in control or not. Business owners need to know how to create and maintain internal controls by implementing a properly designed fraud prevention and detection plan with limited resources.

Why do Employees Steal from their Company?

There are primarily two reasons why employees get  involved in fraudulent activities in an organizational setup; when they are undervalued and underpaid. These two things work as fuel for them and, if it’s not there, the employees feel discouraged, demotivated, and left out. Moreover, you can only expect your employees to work efficiently if both of these things are ensured by the owner. When these two things aren’t there, the owners can expect their employees to be involved in fraudulent activities through various means. Organizations can catch up with their fading fate by creating, implementing, and practicing the proper internal controls.

Corruption Ruins the Business

Moral and financial corruption eats up an entire organization, slowly and gradually. Diminishing profit margins and draining profitability leads a business towards a complete disaster. Owners who are eager early on to get their organization’s operations back to normal may have a slight chance of success. But, those who react when the time has already passed achieve very little or no success at all. Some organizations choose to hire professional managers who can turn things around on their organization’s behalf. This seems like a smart choice, especially for those who are good at yielding sales and profits but lack managerial skills to maintain the right internal controls.

Maintaining Effective Internal Controls

Organizations need to prevent and detect fraud in a way that others working in the company aren’t bothered. By slightly modifying the existing organizational processes, companies are often able to overcome business challenges in an effective manner. Sometimes they are successful, sometimes they fail. It all depends on how well you leverage your internal controls. For a typical company, separation of duties is a critical tool that helps evaluate performance on an individual scale. This way, you get to know whether your employees are stealing from you or not and, if they are, you will know who is stealing!

Additionally, you need to make sure that your employees abide by the policies and procedures. Encourage your employees to document each and every thing for you to know what exactly is lacking or where the problem is exactly. These are some of the ways by which you can maintain a proper internal control in your organization.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

 

Businessman is arrested and handcuffed with dollar high quality and high resolution studio shoot
Internal fraud can happen to anyone, no business is immune to it. Over $500 million annually is lost by companies in the USA due to internal fraud.

Signs of internal fraud

Unjustified transactions

Any unexplained and unjustified changes in bookkeeping records are a definite warning sign of internal fraud. If there is a decrease in revenue despite continuous payments from the business bank account or if there are various pending payments for long periods of time without any justified reason, then there is most likely something suspicious happening. Also, if there is an unexplained increase in expenses and a sudden decrease in profits, it means that money is draining out of the company to a place where it is not supposed to go.

The over efficient workaholics

An accountant who is a fraudster will go to any extent for hiding his or her crime. They often want to work off hours when everyone has gone home. Another sign is that they refuse to go on leave or use any vacation time. They often try to take work home. All of these activities are red flags and need to be addressed. Keep an eye on such workaholics. Unfortunately, there may be an underlying reason for working such odd and extreme hours.

Unexplained satisfaction

Fraudsters try to hide their working documents and processes from managers and others. If any manager or other employee tries to get involved in their work, they become offended. Unsatisfactory explanations and answers are given by them on any fault.

They are overprotective. They work alone and don’t like any involvement or interference. Records maintained by them become inaccessible and untouchable for others. When asked questions, they become strangely defensive. In fact, they know that the records will expose their crime and their answers will be suspicious and unrealistic.

Financial stress

If an accountant is facing any kind of financial stress in their life, there have been cases when they plan internal fraud to fulfill their needs. Any unexpected financial loss such as divorce, mortgage, or debt act as the trigger for internal fraud. Know your employee by taking time for small discussion with them about their current situation. By doing this, you can detect any kind of sudden change in their behavior and activities.

How to respond to internal fraud?

A business owner should know how to respond to internal fraud. Whether the fraudster should go through an internal investigation or handed over to law enforcement should be a decision that you are prepared to make. A forensic accountant should be consulted for an expert opinion.

A forensic accountant is hired in case of any internal fraud. They will investigate and interpret your complicated financial information. The accountant will analyze the amount of loss due to fraud, collect all shreds of evidence, preserve them and prepare a summary of the lawsuit. They will suggest a policy to prevent fraud in the future. Termination is normally the minimum consequence of internal fraud cases. Along with termination, other penalties enforced by a lawsuit are necessary to make it an example that fraud will not be tolerated in your company.

How to investigate

An internal investigation should be exhibited in such a way that your employees, partners, public, and donors trust you and your investigation. No question on the credibility of your investigation should be raised. Hire experienced fraud investigators to ensure that your investigations are handled according to law and be sure that there is no violation of legalities.

A prompt decision needs to be made by the business owner, internal audit, board of directors, and forensic accountant alone or in combination. The size of the fraud, target of the investigation, how to recover the loss, and other risk factors should be addressed by the decision making authorities.

Interview all of the parties, i. e. vendors, customers, and employees. Review all relevant records. Preserve the evidence as early as possible because that documentary evidence is key for investigations. A forensic accountant and IT personnel should be hired to do investigations in the best way to ensure that you handle it thoroughly.

Conclusion

Internal fraud should be investigated in detail to produce evidence for legal prosecution.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

Fraud or money waste crime. US Dollar texture. 3D illustration.

Fraud deterrence is essential for all organizations. The bigger the organization, the more the chances of fraud increases. Frauds are as old as human history and can happen to any company or business despite the organizational structure and the number of workers. Small business managers trust their workers more than usual. There may be weak internal controls. Fraud affects finances, image, and morale of the company. All factors decline after a fraudulent case. Most organizations adopt shortcuts for fraud prevention. These tactics only decrease the opportunity of fraud.

Following are some fraud prevention shortcuts:

Recognize your worker:

References and criminal history of employees must be checked before hiring. Know your employee. Notice any change in their lifestyle, behavior, and devotion. Alcohol and drug abuse and involvement in gambling is also an alert. Seasoned employees are often the trusted one but, without monitoring, they may commit fraud. Many people are opportunistic and a lack of internal controls may encourage them to involve themselves in fraudulent activities. 

Oversee employees meticulously:

A lack of checks and balances can increase the risk of fraud. Your employee’s activities should be monitored and supervised. Money or cash handling should involve more than one person. If a worker is working for extra hours without supervision and is not going to leave, his behavior needs to be analyzed. Critical risk area staff should be rotated periodically as a tool for fraud prevention. Resistance to change by staff in SOPs of inventory or cash handling is an alert.

Clear segregation of duties and responsibilities of an area is a shortcut way out to avoid fraud.

Motivation and pressure:

Managerial staff, administrators and security supervisors often have the opportunity to visit inventory areas without any supervision so they may commit fraud under any social pressure.

Staff should be motivated regularly to practice and adopt ethical behavior in the workplace. Routine orientations and regular training of staff regarding fraud policies and procedures should also be practiced.

Install computer security measures:

Technology advancements are crucial for decreasing risk of fraud. Installation of security camera and entry codes are an important shortcut to prevent fraud.

Application of passwords and firewalls should be practiced. Passwords and entry codes should be changed regularly. The accessibility of these technologies should be strictly restricted to authorized personnel only.

Practice purchase orders:

A consecutively numbered purchase order should be used to place orders. Purchase orders of those issuing and signing authority should be different. Supplies should match with these purchase orders.

Control cash receipts:

Consecutively pre-numbered transaction slips should be practiced. Sale slips and cash receipts should be matched and done by different people.

Use unannounced audits:

Surprise audits without prior intimation should be done. Following audits should be scheduled: annual and quarterly audits by internal as well as external audit teams of all inventory, transactions and fixed assets.

Trail your business checks:

All business checks should be pre-numbered and duly signed by approval authorities.

Inventory management and security arrangements:

Stock receipt, store possession, and distribution should be assigned to different staff. Similarly, the stocktaking of inventory should be done by separate staff.  CCTV cameras should be installed to monitor the movement of staff and inventory. No stock should be kept without written records.

Reconciliation of accounts monthly:

A written policy for cash handling should be established. Staff should be trained to distinguish counterfeit, stolen and bad checks. An independent person should reconcile bank accounts of the company on a monthly basis. All checks should be signed. Financial statements should also be monitored regularly.

Generate fraud reporting system:

Establish a fraud reporting system where anyone can report doubtful actions. All workers should be educated and trained in detection and reporting system. You could also have an anonymous tip box.

Customer returns:

Customer returns are vulnerable to fraud. Return receipt and delivery staff should be different.

Documentation:

Written policies and SOPs for all critical areas should be developed and implemented strictly after training of staff.

Company/client grievances:

Complaints by clients provide a clue for the detection of fraud.

Conclusion:

Fraud prevention and fraud handling are very essential to secure your business. Following the above shortcuts in the organized manner will lead to an anti-fraud policy and strong internal controls.

Check out America's Best Bookkeepers

About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.