Protecting Your Finances: How to Prevent Accounting Fraud

Accounting fraud impacts small and large organizations, and it’s estimated that 5% of revenue is lost annually due to fraud. Businesses with less than 100 employees are at higher risk of being a victim of multiple schemes, including:

• Check tampering
• Billing schemes
• Fraudulent wire transfers
• Inventory theft
• Financial statement fraud
• Many more

We’ve helped companies learn how to prevent accounting fraud and stop it in their organizations. There’s a lot to learn from the case studies that we have, but we want to highlight a few specific cases that stand out to us.

Case Study: Employee Fraud

Employee theft occurs in 22% of small businesses annually, and this figure is only the times an employee has been caught. One of the cases of accounting fraud that sticks in our mind is when:

• A growing company called us to discuss a new accounting department
• The bookkeeper (an employee) recently quit
• Her system required bill payments to be reported to the manager
• All checks were kept in a locked draw

Each week, the manager would provide the bookkeeper with the exact number of checks that she would need each week. Prior to her leaving the position, the printer started to jam, and the woman needed extra blank checks.

As you may have guessed, when the bank statement arrived, something was off.

The bookkeeper wrote herself $17,973.53 in checks and forged signatures. 

Read the full story: employee fraud case study.

Lesson learned: Accounting fraud often goes overlooked, especially when someone in charge of accounting is executing the fraud. Systems and procedures must be in place to separate duties and ensure no single employee has enough power to cause this level of damage to your business.

Case Study: Email Fraud

Over 3.4 billion emails sent per day are malicious. You might ignore the mail that goes into your spam folder, but attackers are becoming increasingly intelligent. A prime example of this (read the full case study) almost occurred with one of our clients:

• An existing client sent us an email authorizing payment to a vendor.
• The wire was standard for the client and in the value of $1.4 million.
• Going through the email, everything checked out. The conversation between employees, the vendor and even the project existed.
• We called the client to verify the payment, and they knew nothing about it.

As a standard safety measure, we call our clients to verify payments. Fraud in accounting can be stopped with a simple verification of an authorization’s validity.

Once the client alerted us that they didn’t authorize this payment, we scanned the email further and discovered that the sender had one additional letter in the email address. The hacker infiltrated the company’s main email system, copied conversations and learned of projects that needed approval.

Lesson learned: Accounting fraud is sophisticated, but an additional safety measure, such as calling the company to verify the charge, can save you millions of dollars.

How to Prevent Accounting Fraud in 2023

Fraudsters will continue to adapt their techniques and do everything in their power to steal money from businesses. You can only put the systems and procedures in place that work today to stop fraud.

A few steps that we recommend every business take to protect its finances include:

1. Secure procedures: All financial procedures need to have checks and balances. Incorporating measures that require more than one person to sign off on payments can help save you a lot of time and money.
2. Independent activity monitoring: If your internal monitoring team can also sign off on checks, you’re asking for fraud to happen. You should work with an independent third-party who has no authorization over your finances to monitor your bank statements and feeds. You can even set alerts for transactions over a certain amount so that you know when substantial amounts of money leave your accounts.
3. Keep duties separate: In the example with the bookkeeper, the company put too much trust in a single person, causing a potential loss of thousands of dollars. Split procedures into small chunks and require reviews and approvals of all payments. Don’t allow one person to have too much control over your finances.
4. Require approval of all major transactions: A phone or video call can stop any fraudulent activity from being a success, such as in the email example above.
5. Timely reconciliations: Reconciling accounts in a timely manner and reviewing them often can help you spot minor cases of fraud.
6. Advanced accounting software: Today’s accounting software allows you to request supporting documentation for transactions and assign users with specific roles to tasks (i.e., pay bills or access them).

Businesses must continue to be diligent and take proactive measures to stop fraud in accounting. Reviewing financials, leveraging the best software and working with a professional (like us) who have experience in detecting fraudulent activities are all recommended.

We’ve helped save our clients millions of dollars by detecting fraud and stopping it in its tracks.

Schedule a consultation to learn more about how to prevent accounting fraud or how we can help you with your accounting needs!

You’ve worked hard to build your business. Now, it’s time to protect it against fraud.