Posts Tagged ‘fraud prevention’

10 Ways To Implement Internal Controls With Limited Resources

Tuesday, July 7th, 2015
How To Implement Internal Controls With Limited Resources - Rea & Associates - Ohio CPA Firm

Putting internal controls to work in your business doesn’t have to be an overwhelming task and you don’t necessarily need to beef up your workforce to get started. Start by simply picking a few key controls that can be easily woven into your daily or monthly processes and begin implementing a few changes at a time.

You’ve probably heard about how critical it is to establish internal controls throughout your business. But if you happen to own a small or midsize company, you may have dismissed this best practice in favor of maintaining your daily operations, optimizing customer service and streamlining your growth initiative. While running a successful business greatly depends on your ability to manage a variety of responsibilities, don’t let yourself become complacent when it comes to protecting your lifework from fraudulent activity. The mistake of ignoring the importance of internal controls in your business could end up costing you greatly.

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

Who’s Watching Your Money?

Would you be comfortable asking someone to watch a briefcase full of your cash, say $100,000? What if it held $500,000 or $1 million? Are you confident that your money would be there when you returned? Believe it or not, that’s essentially what you are doing every day when you run your business without internal controls – you are willingly handing over full access to your most valuable asset.

How To Address Your Internal Control Needs

Even if you don’t have the resources to implement a comprehensive internal control structure, there are still options available that can effectively provide your business with a level of oversight. Before you get started, be sure to consider the difference between preventative controls and detective controls.

As the owner of a small- to midsize-business, you may want to consider implementing a strategy that takes advantage of detective controls, which are typically put in place for the purpose of reviewing data for human error while ensuring that your assets remain secure. One example of this type of control is when, after your accounts have been reconciled, a reconciliation review is conducted to ensure accuracy.

Because of their size, smaller companies are more likely to give a few individuals full access to their business’s funds. These employees are often in charge of making deposits, issuing checks, managing payroll and performing monthly bank reconciliations. Enacting detective controls will not only provide you with the peace of mind you need, it may help take weight off of the shoulders of a trustworthy employee who would rather not have their trust questioned.

Preventative controls, on the other hand, are established by companies seeking to ensure that something doesn’t happen in advance. An example of a preventative control is when transaction limits and segregation of duties are established. This type of control can be very effective, but are oftentimes more difficult for smaller companies to establish due to the lack of resources they can commit to such a strategy.

10 Ways To Implement Internal Controls In Your Business

  1. Document and re-evaluate your operational processes (at least) annually.
  2. Make sure that more than one employee is familiar with your company’s operational processes to protect your business against unforeseeable circumstances, such as sickness, job loss or death.
  3. Conduct monthly reconciliations of key accounts (i.e. receivables, cash, inventory, payables, payroll costs, etc.) Then have these monthly reconciliations independently reviewed.
  4. Implement an approval process for employee spending.
  5. Establish transaction limits.
  6. Restrict access to your company’s general ledger to only a few key individuals.
  7. Review your vendor lists to ensure that they are current and accurate.
  8. Assign someone to review standard and nonstandard journal entries.
  9. Form a policy for creating credit limits for customers – and review it regularly.
  10. Review whether there are other areas unique to your business where employees may be able to manipulate information and identify how to monitor them.

Putting internal controls to work in your business doesn’t have to be an overwhelming task and you don’t necessarily need to beef up your workforce to get started. Start by simply picking a few key controls that can be easily woven into your daily or monthly processes and begin implementing a few changes at a time. Before you know it, aspects of your internal control strategy will become so commonplace that you may begin to wonder how you ever got by without them.

Email Rea & Associates to learn more about the benefits of an internal control strategy.

By Michaela McGinn, CPA (Dublin office)

 

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Update: Ohio Tax Quiz Appears To Be Working

Friday, March 13th, 2015
Tax ID Quiz

According to officials at the Ohio Department of Taxation, while the new Identification Confirmation Quiz may be a pain in the neck, it appears to be working as a identity theft deterrent – Rea & Associates – Ohio CPA Firm

We have learned over the last month that Ohio’s new system of validating taxpayer identification, the Identification Confirmation Quiz, appears to be working.

In an effort to boost security and prevent tax-fraud in the state, the Ohio Department of Taxation introduced the quiz at the onset of the 2015 tax season and began flagging tax returns with data points that are inconsistent with public and commercial data sources. If their returns are flagged, taxpayers are required to take a Quiz to prove their identities.

Read: Theft Safeguards To Cause Tax Return Delays In Ohio

“Through Feb. 18, more than 1.3 million tax returns have been filed with about 874,000 requesting a state income tax refund. About half of the refund requests have been selected for additional screening to ensure that they were not filed by an I.D. thief,” stated Ohio’s Tax Commissioner Joe Testa in a press release. “About 97 percent of taxpayers taking the quiz are passing. That proves they are who they say they are.”

That means about 3 percent who fail the test are being declined to receive refunds that they would have normally received in previous years. As long as that 3 percent consists of actual identity thieves, the results reported are significant.

By Lisa Beamer, CPA (New Philadelphia Office)

 

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Fraud Hotlines Deter Occupational Fraud

Monday, August 25th, 2014

When it comes to your business or organization, you are passionate about making sure your staff embodies your mission and objectives. You take care to select only the best candidates; and when you find them, you conduct thorough interviews, background checks and offer extensive training and timely performance reviews. Months later, now that you have invested significant resources into finding, training and polishing your new employee, you can finally rest easy knowing that you created a team dedicated to common goals and objectives – right?

Fraud Happens

In its most recent version of The Report to the Nations on Occupational Fraud and Abuse, the Association of Certified Fraud Examiners (ACFE) analyzed 1,483 cases of occupational fraud, which resulted in losses totaling more than $3 billion. Of those cases, the ACFE found that businesses with 100 employees or less are more susceptible to financial losses as a result of the three categories of occupational fraud – corruption, asset misappropriation and financial statement fraud.

Here’s A Tip

Maybe, like so many other business owners, you have already considered these facts and have taken steps to deter fraud in your own offices by establishing and implementing codes of conduct and external audits. While those measures provide a good foundation, you may be surprised to learn that of the nearly 1,500 cases of fraud that were reviewed, auditing only revealed a few instances of fraud. On the other hand, 42 percent of these cases were detected by tips. These tips were frequently reported on fraud hotlines and resulted in a 50 percent quicker response time when it came to detecting and stopping fraud.

The Value of a Fraud Hotline

Be proactive about fraud prevention, instead of reacting when you’re caught in the middle of it. A fraud reporting hotline service, such as Red Flag Reporting, has helped clients stay informed about what’s going on in their businesses. Services like Red Flag provide businesses with an opportunity to focus on building relationships, increasing revenue and improving community outreach instead of chasing down occupational fraud in the workplace.

Fraud hotlines are utilized by small and large businesses alike and can help identify and deter other types of unethical behavior before it grows out of control. Fraud hotlines can result in:

  • Fewer OSHA violations
  • Lower Workers’ Compensation costs
  • A decreased likelihood of employment practices lawsuits
  • Zero-tolerance of discrimination in the workplace

Not all employees are bad and not everybody is looking for an opportunity to financially ruin their employer. In fact, fraud hotlines are great because they prove that you are have a team made up of responsible, honest, hard-working men and women. These professionals are the eyes and ears of your business or organization and you not only depend on them to help identify instances of fraud, you need them to report issues to you before they explode into situations that severely damage your financial well-being, employee morale and reputations. By providing your team with a hotline, they will be even more inclined to provide you with a tip or two without feeling like they are rocking the boat.

Are you concerned about the potential for fraud in your organization? Email Rea & Associates to learn more about how a fraud hotline could work for you.

Author: Annie Yoder, CPA, CFE, CFF (New Philadelphia office)

 

Related Articles:

Fraud: Could It Happen To You?

Does Your Audit Process Protect You From Fraud?

How Can Analytics Help Reduce Fraud Risk At Your Business?

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How Can Analytics Help Reduce Fraud Risk At Your Business?

Friday, April 25th, 2014

Whether it’s due to limited resources or staffing, you may find it difficult to find time to closely review the financial activity of various departments within your business. But here’s the thing: not doing detailed reviews can leave your business exposed to increased risk of error or fraud. Incorporating analytics into your review process can be an efficient way to detect errors and fraud and will allow you to identify areas of risk within your business. Analytics are frequently part of audit procedures, and compare the correlation between key statistical data and actual financial activity.

How To Use Analytics In Your Reviews

  1. Identify the information. Identify the department, segment or line item you want to review and determine a time period that will allow the most effective review. Analytics can be used to compare financial activity on a monthly, quarterly or annual basis. Determine what information will allow for the most effective review. For example, if you’re reviewing the revenues related to food service operations you may want to breakout the revenues by type (i.e. lunches, breakfast, a la carte, adult).
  2. Identify the primary driving factors. The most important step in an analytic is identifying the primary factors that will cause significant changes in the activity you are reviewing. Use the changes in those factors to set expectations for the amount you expect the actual financial activity to change. Continuing with the example above, if you noticed the number of lunches served increased 10 percent in the current month compared to the previous month then you would expect the revenues to correlate with that change.
  3. Review the results. Compare your expectations to what actually happened. Based on the example I’ve been using, if your actual revenues decreased by 2 percent then you will want to investigate this change further. If actual revenues increased by 9 percent then you may determine the variance is acceptable and you don’t need to investigate any further.

The Discovery Of Potential Errors

If after you’ve compared the results of the analytics and identified a few areas that didn’t meet your expectations, what do you do next?

  1. Contact the person responsible for the area you reviewed. Determine if there are additional factors that would have caused the variance from your expectations.
  2. If you have determined there are no additional factors or what was communicated to you was not reasonable, you may want to consider a more detailed review. Theoretically, if you have considered all factors in your expectations, the only plausible explanation at this point for a variance is a misstatement probably due to error or fraud.
  3. If you have identified an error, review the controls and processes in place to determine what caused the error. This is where you can identify steps to improve the control strength to prevent future errors.
  4. Inform your auditors of the results of your analytics and the areas of risk you identified. This will allow your auditors to focus on these areas and provide more value to your audit. Your auditors will more than likely ask these questions and you’ll already know the answers.

Using analytics within your business will allow you to properly allocate more of your time and resources to the areas with the most risk. You will be able to efficiently identify the riskier areas and make the necessary improvements in processes and controls to address the risk.  This can prevent possible audit findings, adjustments and can even help prevent fraud.

Analytics and Financial Review Help

If you are looking to step up your game as it relates to financial reviews within your company, contact Rea & Associates. Our team of Ohio government auditors can help you incorporate analytics into your reviews so you can get a better picture of how funds are being used throughout your organization.

Authors: Chad Gorfido, CPA (Medina office), and Annie Yoder, CPA, CFE, CFF (New Philadelphia office)

 

Looking for more information on how to reduce fraud risk within your business? Check these articles out:

Does Your Audit Process Protect You From Fraud?

Have You Assessed Your Fraud Risk?

Do You Subscribe to a Fraud Hotline?

 

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What Are The Top 10 Signs Your Business’s Internal Controls Aren’t Strong?

Friday, November 8th, 2013

Internal controls are procedures that companies develop to safeguard their assets and to produce accurate, reliable financial statements. When a company doesn’t have strong internal control procedures, fraud can occur much easier. Other issues that can arise include inaccurate financial statements, the inability to find certain documents such as invoices or purchase orders, or a higher than usual number of customer complaints.  (more…)

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Does Your Company Have Solid Internal Controls?

Thursday, October 24th, 2013

Let’s admit it… we all want to be able to trust other people. And we generally do…until we’re proven wrong. Owners of small, family-owned businesses are no different, and must put their trust in someone to handle their revenue, disbursements, payroll and inventory, among other financial functions.  (more…)

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Does Your Audit Process Protect You From Fraud?

Monday, April 22nd, 2013

Fraud Reporting Hotline Could Be the Answer to Your Problems

Picture this: You have an annual audit. You comply with the auditors’ requests, provide the necessary documentation and never end up with any findings. So you’re good. Your finances are safe, right? Wrong.

Some people think conducting an audit is like a trip to the doctor – it should catch any and all financial problems. But, just as a visit to the eye doctor won’t include a check for cavities, an audit isn’t designed to uncover all financial troubles. For example: fraud. In very rare instances, an auditor may catch an occurrence of fraud, but it’s not his job to uncover it.  (more…)

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Does Vendor Verification Really Matter?

Wednesday, April 3rd, 2013

As a business owner you likely have heard more than once that you should treat your vendor listing like Fort Knox – keep it secure and prevent access to all but authorized personnel. Typically this conversation is geared toward access to the vendor master, which lists all the important information for approved vendors. The Fort Knox comparison is apt; vendor master security is extremely important. Access should be limited and only granted to appropriate individuals. (more…)

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Fraud Prevention Through Risk Assessment

Thursday, July 5th, 2012

All too often, school clients come to us asking about fraud detection. But, needing fraud detection implies that there’s fraud to detect. Clients should really be asking us about fraud prevention. A proactive approach to fraud prevention, rather than a reactive approach to fraud, helps schools to stop fraud in its tracks.

One of the most important parts of fraud prevention is risk assessment. Determining your organization’s high risk areas will allow you to focus your efforts on the areas where they’ll be most effective – giving you the best bang for your buck. (more…)

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How Do You Protect Your Non-profit’s Donations from Fraud?

Tuesday, June 12th, 2012

In recent years, there’s been a lot of media coverage about corporate fraud. We hear about bankers embezzling millions or CEOs with hidden accounts. But, all fraud isn’t on such a large scale. Sometimes it’s a matter of a $25 check here and $50 in cash there. From a fraudster’s perspective, non-profits’ donations (especially small amounts) are often ripe for the picking. (more…)

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