Posted on: March 19, 2020 by Huntersure LLC.
Internal fraud in a business can come in many forms. From hourly employees who take money from the cash register to top-level executives who might falsify their revenue numbers, fraud is a major issue that hurts a business and its professionals.
According to an ACFE (Association of Certified Fraud Examiners) Global Fraud Study, a typical business loses an average of five percent of income each year due to fraud. Altogether this translates to deficits of roughly $3.7 trillion.
But while fraud may be a major concern to look out for and be aware of, it doesn’t have to be inevitable, and that includes within the accounting field. Here are some signs of fraud in an accounting business to look out for and advice on how to prevent wrongdoing.
If there is an electronic system in place, the financial statements should match with the cash flow and balance sheet information. In manual bookkeeping, there is usually a margin of error that is to be expected. But if something is way off balance, this could and should be investigated in order to weed out potential accounting fraud.
Another major red flag of internal fraud to look out for is when performance may be too good to be true. While reaching for success should be the goal of any company, if a company is reporting major profit margins well above a competitor’s or sales forecasts above the norm, it could be that an accountant is cooking the books.
Companies that are exceeding expectations should be looked into to make sure there is nothing untoward happening internally. If a business uses outside accounting help, such as large-scale firms, they may request an audit of that firm or the employees of that firm working on their numbers. This can help uncover accounting fraud or reveal that negligence might be the issue, not skimming.
Regardless, if there are discrepancies, a company may bring claims against an accounting firm or a specific employee. With this in mind, it’s important for accounting firms to invest in accountant liability in order to keep financial and legal exposures low. Having accountant liability insurance can pay for legal fees related to claims made by clients such as cooked books or errors and omissions.
Accountants are known to have steady incomes with above-average pay and benefits. But while this may be true, it should signal some red flags if an accountant comes rolling up to the office in the latest sports car or shows off flashy jewelry. Some businesses should take into account that some people come from wealth, saved up money over time from previous roles, invest in stock, or are just frugal in other parts of their lives. But if an accountant is suddenly living a more extravagant lifestyle, it could be an initial clue that they’re increasing their own pocketbook from the company’s assets.
It should be made clear that routine in-house audits will be made by more than one accountant, looking over everything including daily expenditures. Just knowing they could be caught could be enough to deter an accountant from trying to commit internal fraud.
Huntersure LLC is a full-service Managing General Agency that has provided insurance program administration for professional liability products to our partners across the United States since 2007. We specialize in providing insurance solutions for businesses of all sizes. Our program features can cover small firms (grossing $2.5 million annually) to large corporations (grossing $25 million annually or more). We make doing business with us easy with our breadth and depth of knowledge of E&O insurance, our proprietary underwriting system that allows for responsive quoting, binding and policy issuance and tailored products to meet the needs of your insureds. Give us a call at (855) 585-6255 to learn more.
Posted in: Accounting