Friday, July 26, 2013

Tips to Preventing Accounting Fraud

Identifying and preventing accounting fraud can be more difficult than you may think. The Association of Certified Fraud Examiners reports that a typical organization or company loses 5% of its annual revenue to fraudulent activities. If you own a small business, it is important to know that fraud can happen. Even if you believe your business could never be jeopardize.

 

Tips to Preventing Accounting Fraud

It is important to know that company employees are often the perpetrators of fraud. Loyal, long-term employees frequently perform fraud and unfortunately external audits only detect fraud around 4.6% of the time. It is important to regularly check your employee’s records as well as keeping a close eye on where your money is going. Always, run a background check on your employees to try and prevent accounting fraud from within.

 

The most common way company owners discover fraud being committed is by employees reporting it. Encouraging your employees to come forward without fearing retaliation from the company is crucial.

 

When it pertains to protecting your company from fraud, there are a few ways to approach the situation. First, provide employees with a comfortable environment where they can leave notes or remain anonymous from other employees. Secondly offer employees a reward for any information if fraud is suspected. Offering cash, extra vacations days or even donations to a charitable foundation of their choice can entice employees to come forward. Lastly and most importantly, remember it starts with upper management. If the board of directors and chairmen are not interested in legal and ethical situations in the business why would people come forward and give tips concerning fraud.

 

There are a few other ideas to keep in mind when trying to avoid accounting fraud. Keeping personal information private seems relatively easy but it is important to only provide information to your accountant during tax season. It is also important to verify that all information is correct when preparing taxes. A common fraudulent scheme is when tax files are filed fictitiously. Lastly it is essential to know your accountant. Always know your accountants credentials and read testimonials from other clients.

 

Keep these tips in mind during the year and especially during tax season. If you are in the process of selecting a person or going through an audit, don’t forget to ask a lot of questions and verify all documents they prepare on your behalf.

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