What Accounting Fraud Means And Its Red Flags
When the accounting fraud is mentioned, it normally indicates that some intentional manipulation has been undertaken on a firm’s bookkeeping records. In many of the cases, this action is driven by the intention of depicting a company that has a better financial performance than the situation on the ground. You will tell that you are looking at a case of the accounting fraud if you notice that either the liquidity have been made to appear healthier than it really is via the merging of the liabilities both short and long term, sales revenues that have been misstated, expenses that are underrecorded or the presence of accounting practices that are creative.
One of the tell tales that some level of accounting fraud is taking place in your organization is when you notice that is an unexplained switch of lifestyle by the staff that work in your finance department. You will be able to see that the salaries that they are getting cannot be sufficient to support the level of the ostentatious life that they are having.
You will know that underground accounting fraud is happening in your organization if there is persistent same patterns when it comes to the figures. This is a practice that has always been unearthed by people undertaking forensic accounting,
If you discover that the same staff that is assigned the task of undertaking the reconciliation of the firm’s bank statements is also supposed to sign the cheques, that is a red flag that accounting fraud is being perpetrated. It is highly advisable to separate activities such as these as they conducive to the commission of the fraud.
You should be wary of a member of staff in your organization that exhibits a personality that is intended to control others. On the other hand, a secretive nature is part of the attributes that such a person exhibits. Usually the reason behind such a behavior is to act as a faade to hide some level of accounting fraud that could be taking place right under your nose.
One warning sign that points you to the existence of the accounting fraud in your business is if people who have some level relationship between are put together o work in the finance department. This will not only encourage collusion but the workers will be able to bypass the relevant checks and balances.
When your bookkeeper has the habit of being left behind in the office after hours, you should view that as a red flag for accounting fraud. Your alarm bells should be set off ringing if you discover that the accountant is regularly carrying out some of the work at his residence. Before you assign the employees that will be in charge of your bookkeeping section, it is imperative that you carry out a comparison of the accountants so that you are sure that they are credible.