Running a business isn’t easy. Not only do business owners need to keep up with the demands of operations, compliance, and regulations, but they must also stay on top of client projects and the corresponding billings.
One thing clients never want to see is a discrepancy in accounting. While this may be due to an error, some businesses are then forced to confront major issues, such as fraud. While this may sound more like an isolated incident than a regular occurrence, the sad truth is that the latter is often the case.
Fraud, specifically occupational fraud, is committed by employees against employers. It can be further divided into three categories: corruption, asset misappropriation, and financial statement fraud.
People often commit fraud due to several factors. The likelihood of committing a fraudulent act is much more likely if all three of these factors are present:
Financial pressure – The perpetrator faces financial pressure due to unusual and extreme financial demands.
Rationalization – The perpetrator rationalizes their belief that they should receive additional compensation. They may also rationalize that they will attempt to repay what was stolen.
Opportunity – The perpetrator has access to the business’ finances and assets.
Because business owners have their hands full with everything else, implementing ways to integrate mitigating fraud into their business processes is essential. While it is impossible to control whether their employees will commit fraudulent acts, they can manage their workflows to mitigate the risks. By doing this, they are ensuring that fraud can be detected as early as possible, if not completely prevented!
Several of these preventive measures are related to keeping a closer eye on accounting and bookkeeping functions, such as:
Small businesses run the risk of having only one person handle all bookkeeping functions, including managing petty cash, client receivables, paying invoices, and processing client payments. This person should also record all these transactions into the office’s accounting system.
Fraud is easily untraceable in such situations because there is no form of check and balance. Small businesses should have at least two people handling cash and accounting separately. Another option would be to outsource the accounting and bookkeeping functions.
Audit checks should be performed regularly, especially for business areas that deal directly with cash, accounting, and inventories. Regularly scheduled audits can run the risk of being predictable, so performing a non-scheduled audit now and then can help detect fraud in critical business areas.
Smaller businesses will usually forego the background check for their recruitment process, which can be potentially dangerous in the long run. There are no assurances that a new hire was a convicted felon in the past without running a background check. Ensuring that each employee’s record is squeaky clean can significantly reduce the chances of dealing with fraud or other problematic behavior later on.
Management should make it a routine to check account transactions and statements, which is much easier with online banking. Other things to watch out for are unknown payment receipts, out-of-order checks, and checks signed over to third parties rather than deposited into a business account. It also helps to let employees know that accounting processes include reviewing all incoming and outgoing checks to dissuade them from attempting any fraudulent activity.
Restricting access is one of the most effective countermeasures for fraud. Maintaining strict internal controls within the business can ensure the integrity of its bookkeeping. Access should be restricted for inventory and financial accounts, while multi-person sign-offs should be implemented for overtime, reimbursements, checks, and payroll and accounting functions. While trusted and qualified point persons in your business can perform these functions for you, it also helps to have software for extra security and check and balance.
While it’s impossible to prevent fraudulent activities completely, there are ways that businesses can mitigate these instances. Preventing and detecting fraud has to be well ingrained into one’s business processes, especially in accounting and bookkeeping. Utilizing some software can improve the workflows and processes for such functions. The clearer a business’ workflows and the better their tools are, the more easily they can keep safe from fraudulent acts!
If you’re finding it a challenge to keep up with the needs of your client, then an accounting management software may be the solution for you. Firm 360 is an all-in-one workflow management software that offers everything you need to manage your workflow, communicate with clients, and track your time. Visit our website and book a demo today!