Posts Tagged ‘financial statements’

Would You Know If Someone Was Stealing From Your Business?

Friday, May 20th, 2016
Employee Fraud- Ohio CPA Firm

According to the 2016 Report to the Nation on Occupational Fraud & Abuse by the Association of Certified Fraud Examiners (ACFE), the typical organization loses 5 percent of its annual revenue to fraud. What are you doing to prevent fraud from occurring in your organization?

A 20-year employee at a city school charged with managing adult education programs was known as a hard worker who had secured her colleagues’ respect. But when external auditors came into the district to review the school’s financial records, it didn’t take long to realize that something just wasn’t adding up. Questions began to circulate and people starting comparing notes. It wasn’t until her co-workers started questioning how she could afford the costly gifts during the holidays and lavish purchases made to redecorate her home that all the pieces began to fit together. After all, that type of money was certainly not in line with her position’s established pay scale.

Read Also: Are Your Employees Skimming From The Top?

Warning Signs

The funds this woman used to redecorate her home were not acquired honestly. They were obtained as part of an embezzlement scheme that lasted for at least two years. Because she attempted to cover her tracks by destroying the financial records, forensic accounting professionals were called in to reconstruct the activity using the school’s enrollment records.

The fraudster was thwarted in this instance … but this is certainly not an isolated incident. In fact, it happens more than you might think.

According to the 2016 Report to the Nation on Occupational Fraud & Abuse by the Association of Certified Fraud Examiners (ACFE), the typical organization loses 5 percent of its annual revenue to fraud. The group estimates that the potential financial loss to organizations worldwide due to fraud is at least $3.7 trillion dollars. The median loss in this particular study, which compiled data from 2,410 cases of occupational fraud in 114 different countries, was $150,000. Nearly one-quarter of all frauds in this worldwide study topped $1 million or more.

What Are You Doing To Prevent Fraud In Your Organization?

If you are looking to significantly decrease the fraud threat in your organization you must have a strategy in place to prevent and detect it. And if a fraudster is in your midst, implementation of anti-fraud controls are effective are an effective way to shut fraud down faster. The Report to the Nations states that the presence of anti-fraud controls correlated to fewer losses and quicker detection.

Which Control Is The Right Control?

According to the report, the top five anti-fraud controls utilized by organizations today are:

  1. External Audit of Financial Statements
  2. Code of Conduct
  3. Internal Audit Departments
  4. Management Certification of Financial Statements
  5. And External Audit Internal Control over Financial Reporting

But are they the most effective?

Over the course of this study, researchers found that the five most effective controls when it comes to preventing and stopping fraud are:

  1. Tips
  2. Internal Audits
  3. Management Review
  4. By Accident
  5. Account Reconciliation

A key opportunity to guard against fraudulent behavior is still being missed. For example, while tips were the most common detection method regardless of whether a hotline was in place, fraud schemes were detected by tip in 47.3 percent of cases at organizations that had fraud hotlines. In contrast, only 28.2 percent of cases were detected by tips at organizations without hotlines. It’s clear that businesses and organizations should invest in a fraud prevention strategy that encourages anonymous tips if they aren’t doing so already.

Is your business or organization at risk? Do you want to learn more about which controls are most effective at preventing and detecting fraud? To learn more on this topic, email Rea & Associates.

By Annie Yoder, CPA, CFE, CFF (New Philadelphia office)

Check out these articles for more fraud-prevention strategies:

Let’s Talk About The F-Word

Cost-Effective Ways To Deter Fraud

How Much Money Could You Be Losing From Fraud?

Share Button

Where There’s Smoke, There’s Fire: 5 Internal Control Tips That Can Save Your Business From Fraud

Monday, March 30th, 2015
Prevent Fraud With Internal Controls - Rea & Associates - Ohio CPA Firm

When you implement internal control components into your management strategy, you not only deter fraudulent behavior, you help improve the overall quality of your financial statements, which could result in improved transparency, fewer external audit findings and even additional growth and sustainability. Start establishing internal controls today by incorporating these five components into your daily business or organizational activities.

Will the lack of internal control procedures result in the untimely demise of your business or organization? Studies show that if you don’t take action against fraudulent behavior today, tomorrow could be too late. The term “fraud” covers a lot of ground and includes actions that ultimately affect the accuracy of your financial statements. In fact according to the Association of Certified Fraud Examiners (ACFE), entities without internal control procedures are more likely to make errors on their financial statements and more likely to be victims of fraud, which is why it is so important for you to protect your business or organization with procedures that ensure accuracy and reliability of these records.

“The presence of anti-fraud controls is associated with reduced fraud losses and shorter fraud duration. Fraud schemes that occurred at victim organizations that had implemented any of several common anti-fraud controls were significantly less costly and were detected much more quickly than frauds at organizations lacking these controls” (ACFE, 2014).

Read: Fraud Hotlines Deter Occupational Fraud

Improve Accuracy, Eliminate Fraud

When you implement internal control components into your management strategy, you not only deter fraudulent behavior, you help improve the overall quality of your financial statements, which could result in improved transparency, fewer external audit findings and even additional growth and sustainability. Start establishing internal controls today by incorporating these five components into your daily business or organizational activities.

  1. Control environment – There’s no doubt about it, when it comes to setting the tone of your business or organization, all eyes are on you. Employees, volunteers, management and even the general public are more likely to “walk the walk” AND “talk the talk” if they see that you hold them and yourself to the same expectations. When leaders demonstrate a good ethical and moral framework, appear to be approachable about all issues and a commitment to excellence, nearly everybody takes notice and adjusts their behavior accordingly. It also helps to develop a rapport with your management team to encourage engagement throughout all levels of leadership.
  1. Risk assessment – Whether formal or informal, a risk assessment is critical to the process of identifying areas in which errors, misstatements or potential fraud is most likely to occur. By conducting a thorough risk assessment, you can identify which control activities to implement.
  1. Control activities – The best way to safeguard your business or organization is to segregate duties. This means that you should have different employees managing different areas of the company’s accounting responsibilities. When you put one person in charge of your accounting process you are freely giving them the opportunity to alter documents or mismanage inventory – and it’s a clear indication that you have weak internal controls. Dividing the work among your other employees is critical to the checks and balances of your company or organization. It’s also a good idea to develop procedures for recording, posting and filing documentation. Here are a few activities to get you started:
    1. Reconcile bank statements.
    2. Require documentation with expense reports.
    3. Match invoices with the goods and services you received prior to paying off your accounts payable balances.
    4. Make sure the person who has access to your business assets is different from the person responsible for the accounting of those assets, which will establish a form of checks and balances.
  1. Information and communication – Providing your employees with information about the internal control process and the resources available to them is a critical component to your success and the overall success of the internal control activities. In fact, simply knowing there are certain controls in place to promote accuracy and prevent fraud is enough to stop problems before they even start.
  1. Monitoring activities – Your job doesn’t end at the implementation of your internal control procedures; in fact, it’s just beginning. For your internal controls to work (and work well) you must establish your monitoring activities – and monitor frequently. Establishing internal controls is great, but they will have no effect if you neglect to monitor them. Furthermore, your internal controls should grow with your business or organization to ensure their long-term effectiveness.

Risk management and internal controls are necessary for the long-term success of every business and organization and a financial statement audit is a great way to provide you with insight into the internal controls of your organization or business. This kind of review structure can potentially reveal problems you didn’t even know were there – including fraud. But what if you are not planning on conducting an audit on your financial statements this year? Another option could be to work with a CPA who can help you document an understanding of the design and effectiveness of your internal control policies as a way to reassess your current strategies and identify areas for improvement. Email Rea & Associates to find out what options are available and how internal controls can put a stop to fraud in the workplace.

By Christopher A. Roush, CPA (Millersburg office)

 

Related Articles

How Can Analytics Help Reduce Fraud Risk At Your Business?

Does Your Audit Process Protect You From Fraud?

Fraud Prevention Through Risk Assessment

Share Button

How Can My Statement of Cash Flows Transform My Business?

Friday, February 28th, 2014

Do you realize that your business’s financial statements are a valuable management tool for decision making? You may be thinking, “Well, I just get them done because the bank needs them for my loan file,” or, “I think I have a copy in a drawer somewhere.” But if you take the time to understand your financial statements, you’ll be surprised to find that they can give you information on the condition of your company and allow you to make better business decisions.  (more…)

Share Button

Do You Understand Your Company’s Financial Statements?

Wednesday, June 19th, 2013

Big GAAP vs. Little GAAP has been a hot topic in recent years. (Okay, “hot” topic may be a stretch…) The question of the hour is: Why should a privately held company with close relationships to owners, bankers, insurers and other financial statement users need to comply with the same complex rules and extensive disclosure requirements that a publicly traded company is held to? (more…)

Share Button

Are You Ready For FASB 715-80 Disclosures?

Thursday, December 13th, 2012

From ERISA fee disclosures to benefit limitation regulations, 2012 has been a year of regulations for retirement plans.  If your company offers a retirement plan, you may feel like you’ve spent the whole year jumping through the hoops that regulators threw at you.  Bad news, you might have one more hoop to hop. (more…)

Share Button

Are Vendors and Customers Checking Up On You?

Monday, June 14th, 2010

In better economic times, banks were the only ones concerned with the financial statements of manufacturers. Today, however, a manufacturer’s customers may also make access to financial information a condition of doing business with them. (more…)

Share Button

Why should I treat my business as an investment?

Friday, April 23rd, 2010

To answer this question, think about the stocks and bonds you may have invested in. Everyone wants to maximize the value and annual return on their investments. But many owners of closely-held businesses don’t place the same attention and care to determine the value of their businesses or work to improve their return on their largest investment.

Just like your stock portfolio, your business requires tending to help it create greater wealth. And just as you pay a fee of about one percent of your portfolio to an investment advisor to track and value your assets, you should plan the same to invest in the valuation and management of your business value. Typically 50-70 percent of your net work is tied up in your business. If you could double its value, wouldn’t you do it? Other businesses have seen this type of return and you can too. (more…)

Share Button

How Important Are Financial Statements?

Wednesday, April 21st, 2010

Although they’re not required for a closely-held business, financial statements can provide a crucial roadmap that helps management determine the financial health of the business and the steps to improve the return on investment for the owners – not to mention the fact that several entities outside your business may also request them.

There are four basic financial statements: balance sheet, income statement, cash flow statement and statement of shareholders equity. Do you know the difference? (more…)

Share Button