Forensic Accounting Services Can Prevent Fraud

Many companies have established inadequate business processes to guard against fraud. Small businesses mostly rely on close-knit managerial teams to manage the finances or the segregation of duties among employees.  In a perfect world, these strategies would be fine, but fraud is common in small businesses because of such oversights.

Make the Right Statement

A forensic accounting firm can show you how your company’s financial statement can reveal more than the bottom line. The American Institute of Certified Public Accountants Statement on Auditing Standards No. 82, Consideration of Fraud in a Financial Statement Audit, requires CPAs to examine financial statements not only to follow sound accounting practices but also to look for material misstatements.

Lax internal controls or unfamiliarity with the accounting process can seriously impede the audit process. For instance, you may understandably insist on complete control of your company’s finances — but trust an unscrupulous employee to provide you with information.

Or you may fail to establish good internal controls to guard against risks leading to material misstatements or fraud. Often, small firms overemphasize meeting projected product or service goals, avoiding taxes or maintaining budgets at the expense of all else.

Does this sound like your company? If you have a “wait-and-see” attitude toward internal controls, a forensic accounting auditor is likely to assess the risk of material misstatement as high. Fraud perpetrators may under report income or misappropriate assets in an attempt to defraud partners or mislead you regarding your company’s equity. Managers have also been known to inflate income and assets to increase a firm sale price or gain higher compensation. Our insolvency practitioners can provide a plan for establishing sound internal controls.

Contact our forensic accounting services by email or call us at 1 (888) 875-9770 to look at some ways you can tighten your internal controls to prevent fraud.

Build Walls That Protect

When it comes to communicating, companies need to tear down walls. But when guarding against fraud, building walls is better. An adequate control system segregates your company’s authorization, custody, operation and record-keeping functions. Such segregation is one of the best ways to control employee access to your business's assets.

Effective forensic accounting controls mean separating and documenting every important financial activity. For example, insist on proper authorization and documentation for every financial transaction. Rotate custodial responsibilities among several employees and independently check on their performances.

Don’t Endanger Your Assets

A small firm’s very nature can leave it vulnerable to fraud. Insufficient staffing can lead to inadequate duty segregation. A small company lacking enough employees to properly separate responsibilities too often concentrates access to cash, inventory and fixed assets in the hands of one or two workers.

Forensic accounting services can help identify your company’s most vulnerable assets. An asset is more likely to be a target for misappropriation and fraud if comprised of a large volume of small items or items in high demand. If your company deals with highly marketable items or items lacking ownership identification, such as tools or electronic equipment, establish a tracking system to make these items easier to follow.  Contact our forensic accounting firm to learn about our forensic accounting services.

Lay Down the Law

Your company’s fraud prevention policies are good only if enforced. Establish proper authorization channels with policies and procedures, and properly document both to provide a good audit trail. Use pre-numbered documents to ensure your financial staff properly records authorized transactions.

And set up physical safeguards to protect assets with the help of your forensic specialists — including locks, fences, gates and secured warehouses. Conduct periodic internal checks on performance to ensure employees maintain proper duty segregation.

Finally, consider diversifying your company’s job duties to the logical extreme. For instance, to viably separate your accounting personnel’s duties, make sure key oversight responsibilities go to non-accounting personnel. Such duty separation assignments will make your business less vulnerable to asset misappropriation and fraud.

Small Doesn’t Mean Helpless

Although your business may be small, you’re not helpless at the hands of fraudsters. By keeping a close eye on your financial statements and making sure to segregate duties in areas where fraudulent activity occurs, and implementing a forensic accounting plan, you can protect yourself from preventable losses.

For more information on fraud, please contact our forensic accounting services department. We can provide general information about fraud prevention as well as conduct a full audit to ensure your company’s money stays where it belongs.

related links