Accounting Strategy and Fraud Prevention 

Fraud Prevention

There have been stories of accounting scandals over the years. Billions of dollars disappear into thin air due to employee greed. The result of such nefarious activities has had a big impact on millions of people, employers and employees alike. Companies have shut down thus the loss of livelihoods for employees and other stakeholders.

The publicly traded Waste Management Inc. in the US was one such example. Reports showed an excess of $1.7 billion in fake earnings. Investigators showed that several top executives, including the owner, were culpable. Eventually, they had to pay over $457 million to settle a class-action suit. 

Enron, a US energy company, also managed to hide billions under the guise of bad debts using accounting loopholes. There are many other examples of such fraud. It doesn’t even matter the type, industry, or size of the company. 

It is clear that the prevention of fraud is critical for any organization. We will show you how below.  

1. Hire the Right People for the Accounting Department

It is critical to hire the right people for the accounting department. Due diligence is something that the company cannot ignore. Doing a credit check on a potential employee can save you a lot of headaches.

A CNBC report shows that more than half of employers do background credit checks. 86% do so to protect their customers and employees. Credit reports verify identity, education, and background.

It is an effective way to prevent embezzlement or theft due to several reasons. The first shows how responsible the candidate is. 

A good credit report is indicative of someone who keeps up with debt repayments. It will also show whether the candidate is in financial distress. If yes, it would be risky to trust him with the company finances. 

Employees must keep a close eye on the credit report.  If there are any errors, it is important to take care of them immediately.

A top-rated credit repair company can advise on how to improve your credit ratings. They can also help remove any unverifiable or inaccurate information from the credit report. 

2. Perception of Detection Strategy to Prevent Fraud

Stringent controls on your accounting process are critical. Think about it much like you would when protecting your home. You can install a combination of locks, security cameras, and alarm systems.

Even with such, it does not mean that you get total protection. Someone determined to get in will still try. However, each security feature will provide a challenge for the thief. Even if he breaks the lock, there is the issue of the alarm. 

He must work quickly to get in before the security company gets an alert. And he will remain aware of the fact that the camera is recording everything.

Now, implement the same in your accounting department. Pay salaries with physical checks to catch ghost workers. Any spikes or dips in the sales trends should warrant an immediate investigation. 

With online banking, it is easy to review account activities. Are there any missing checks or payments to unknown recipients? Instead of money going to the business account, it ends up with a third party, and so on. 

Now here is what you must do. Do not carry out the activities in private. By all means, alert everyone so that they know what you are up to. It helps create the perception that someone is watching all the time. 

 3. Be Strategic About Allocation of Duties

Separate roles to make it harder for people to steal. Assign the role of paying bills to one person. Give the role of bank account reconciliation to someone else. It removes the possibility of the bill payer inputting false figures to cover any theft.  

Whoever inputs data in the books should not be the one to review the documents. Consider having different people handle accounting and cash functions.

If the business can afford it, hire an accounting firm. Strategic allocation of duties can be an effective fraud prevention strategy. It also makes it easy to detect any unusual trends, allowing for quick corrective action.  

4. Have Stringent Internal Controls 

The accounting department is very sensitive in the type of tasks it handles. You must have systems or programs in place to safeguard information, assets, or data.  

We have already talked about the strategic allocation of duties above. Another important control is around documentation. The onus is on you as the business owner to keep a close eye on everything.  

Other steps include:

  • Check invoice and purchase order numbers. 
  • Verify receipt amounts and corresponding figures in the books. 
  • Have more than one signature requirement on cheques with large amounts.
  • Do away with the signature stamp; which someone can copy easily.
  • Keep a close eye on new vendors to avoid fictitious accounts and so on.  

Remember it is important to monitor and revise your internal controls. Take advantage of technology, where possible, to create more effective systems. 

Consider it an investment to hire professionals to analyze your procedures and policies. You get expert advice and recommendations that you can implement in your accounting department.  

5. Create a Culture of Fraud Awareness and Prevention in the Company 

Do not leave out employees in the fight against fraud. Take the time to educate or train everyone on fraud detection and prevention. Make it easy for employees and other stakeholders to report suspicious activity. 

Many may not do so because they are afraid of victimization. But an anonymous reporting system can help with this.  

Note that suppliers, competitors, customers, and vendors are also important sources of such information. So, make sure you have systems that allow them to communicate. A tip hotline or website portal can help with this functionality.  

 Final Thoughts

The accounting department is critical in the running of the organization. Yet it is also the leading source of fraud. We have looked at some things the company can do to prevent theft or embezzlement.  

Take the time to hire the right people in the accounting department. Do stringent background checks including requesting credit reports. 

Put in place procedures and policies. Please ensure all the employees know what you expect. A culture of fraud awareness can save the company from financial ruin due to theft. 

Finally, do consider it an investment to hire security professionals for relevant advice. 


Please enter your comment!
Please enter your name here