In today’s world fraud is all too common. It seems that nearly everyone can remember when they heard about a scandal involving fraud. Most fraud scandals that make the news headlines are large corporations. So, it makes perfect sense that a small business owner would not consider their business for being at risk of fraud. The truth is, a small business is much more likely to be at risk. According to the Association of Certified Fraud Examiners, losses incurred due to fraud in the smallest businesses are 100 times greater than those incurred by the largest companies.
What is Accounting Fraud?
Accounting Fraud is the intentional misrepresentation or alteration of financial statements such as accounting records regarding sales, revenues, and expenses for the purpose of misleading investors or shareholders. Employees who commit accounting fraud at the request of their employers are subject to personal criminal prosecution.
There is not a simple guideline a business owner can go by to determine who will commit fraud or not. Based on past fraud scandals, those who commit fraud are typically in a senior or managerial position and have no prior history of criminal activity. Since those who commit fraudulent activity typically fall off the radar it is important for a business owner to take all necessary precautions in order to prevent fraud.
Companies that have the highest risk of fraud are those with easy access to actual bills and banks accounts. Petty cash or a cash register could increase temptations.
How to Prevent Fraud
Segregation of duties: Use a system of checks and balances to prevent theft in the company. One person should not have controls over all the accounting system. For example, if one person prepares checks, another person will approve invoices. This system not only prevents fraud but also prevents accounting errors.
Check List: Another easy way to prevent fraud is to create a checklist. Each time an employee adds in financial data they at required to document and initial the checklist. This creates an audit trail of responsibility.
Audit Trail: If a company has more than one person using the accounting system it is important to keep a record of who makes changes. Accounting software tracks the Audit Trail of who made an entry and stores the date and time information, as well.
To prevent your company from a fraud scandal, hire a licensed CPA to keep track of your financial expenses. Rosillo and Associates are here to keep an eye on your business accounting. Give us a call today.