Posts Tagged ‘fraud’

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)

 

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How Can Analytics Help Reduce Fraud Risk At Your Business?

Does Your Audit Process Protect You From Fraud?

Fraud Prevention Through Risk Assessment

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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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How Do You Protect Yourself from Identity Theft?

Thursday, April 11th, 2013

“Interested in credit card theft? There’s an app for that.”

Those were the recent words of Gunter Ollmann, a technology security consultant. To Mr. Ollmann’s point, identity theft is getting easier and easier to perpetrate. Identity thieves are using the internet to find victims and steal their private data.  But, the use of technology swings both ways; consumers are increasingly using it to protect themselves and their identities.  Here are some on- and offline steps you can take to protect yourself from those trying to gain access to your data: (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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How Do You Stop School Credit Card Fraud?

Tuesday, October 9th, 2012

Is your school struggling with declining funding? If so, you’re probably worried about the top line. You’re closely watching what’s coming in. You’re exploring ways to generate revenue. But, you need to be equally worried about what’s going out.

Credit cards are one of the most common ways for funds to escape your district. This type of fraud is particularly destructive because it tends to be long-term, continuous and difficult to spot. Employee fraud is like a hole in a bucket – no matter how much water you add, slowly but surely, the water level keeps going down. However, if you understand where fraud may be taking place, you can take steps to deter it. (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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