Detecting accounting fraud isn’t easy, especially when all you have are financial statements. Useful as they might be, financial statements provide what you might call a high level of view of the situation; they largely lack the sort of personal detail you might need to locate suspicious activities. When it comes to detecting accounting fraud, you need to pay close attention to the details, this along with keeping an eye out for extraordinary patterns and anomalous transactions, some tips, considerations and approaches that are bound to prove useful to anyone looking for accounting fraud including the following:
-Human beings are the weakest link in any financial scam. If you are looking for accounting fraud, rather than spending your days pouring over financial statements, take a closer look at the people within a given organization, especially those persons with the means to carry out the fraud in question.
Guilty parties are often prone to nurturing unusual behaviours. Not only do they rarely assign work even when they are overloaded (out of fear that others might take note of their fraudulent activities), but the less experienced will take to drinking and smoking, this along with other manifestations of their guilt. Of course, suspicious behaviour from an individual, even one working within the financial wing of an organization, doesn’t always mean that accounting fraud is taking place. However, it is one reason to take a closer look at your books and the financial documents of
– One of the most obvious signs of accounting fraud is deposits or even checks that have not been included in the bank reconciliations. Keep a close eye out for deposits that are missing. Precluding a financial error, the chances are high that someone either absconded with the funds in question or made bogus payments of one sort or another.
– Missing documents should always set off alarms in any given organization. Admittedly, documents go missing all the time. Most employees are human. As such, they are bound to make mistakes, and it is the job of any administrator in an organization to look for reasonable explanations for any missing documents. However, individuals partaking in fraud have been known to make documents that provide evidence of their fraudulent activities disappear, especially whenever auditors enter into the picture. Whenever you come across cases of missing documents that cannot be explained, it is essential that you take the matter seriously, taking steps to launch an investigation, because the chances are high that someone is trying to hide their financial mischief.
– As an individual in an organization trying to detect accounting fraud, consider looking at your sales records. Keep a close eye out for incessant refunds. It is not uncommon for fraudsters to siphon considerable amounts of money from large companies by issuing bogus refunds to non-existent clients that have returned merchandize. In such cases, look for recurring names of clients that have received repeated refunds for damaged products that they have returned.
– The best fraudsters know how to commit theft and cover their tracks by making fictitious entries. However, this is rarely the case. In fact, most accounting fraudsters do not think beyond simply keeping their theft hidden in the moment that it is happening, rarely taking into account the consequences of their actions in the long term. As such, accounting fraud often manifests ledgers that are out of balance. Just take inventory of your merchandize. If the ledgers are only out of balance as a result of human error, then there should be cash to account for any missing assets. Otherwise, do not be afraid to take ledgers that are out-of-balance as a clear sign of fraud and theft.
– Look for excess purchases. Excess purchases are not always a sign of nefarious activities. However, they can be used to cover fraud. Fraudsters have been known to create fictitious payees to convert funds. In some cases, excess purchases are simply a sign of the purchasing agent in question receiving a payoff for one of various unsavoury reasons.
– One of the most common manifestations of accounting fraud is ghost employees. Individuals use such schemes to take advantage of salary payments made out to employees that do not actually exist. Many a ghost employee scheme has been uncovered by auditors simply using more vigilant methods of distributing pay checks to employees within any given organization. If you suspect the existence of a ghost employee scheme within your company, you are encouraged to immediately contract the services of a fraud examiner.
-A surprising number of employees have, at some point in their lives, used their individual expense account reimbursements to benefit financially. While most such cases are minor, it is not uncommon for fraudsters to utilize such opportunities to defraud companies in bigger ways. Where an administrator suspects accounting fraud in such a manner, they are encouraged to take a closer look at their employees’ reimbursements, ensuring that they are not only reasonable but that there are no suspicious trends.
– While excess purchases rarely attract the attention they deserve, excessively large payments, especially to individuals rather than companies, should raise suspicions relatively easily. Large payments are often a sign of fraudulent disbursements and should be investigated whenever they are detected, no matter the situation.
– Have you ever come across more voided sales slips than you can explain? If so, you have all the evidence you need to launch an investigation because voided sales can be used by fraudsters to divert payments and cover the theft. Excessive voided slips are rarely the result of simple human error. If you follow the thread, you are bound to find accounting fraud at the end. Proving even more common these days are excessive credit memos. In cases of fraud, you will find fraudsters writing credit memos to non-existent clients. Not only are such schemes clever but they are somewhat difficult to detect, especially if you are not specifically looking for them.
– When fraudsters misappropriate customer payments, it has become common for them to hide any shortages that arise by making adjustments to receivables. In such cases, look for bogus billing schemes. Detecting accounting fraud isn’t a science. Rather, all you need is proper attention to detail and an appropriate understanding of financial matters. In truth, most fraudsters are rarely as clever as they are expected to be. The majority are prone to leaving clues that reveal their mischief.