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Asset Misappropriation - Complete Controller

Employee theft of inventory and supplies and the unauthorized use of equipment, although not as recurrent as cash theft, can do major damage to small businesses. In some cases, a non-employee conspirator may be involved, including a dishonest vendor. Although cash is the ideal target for employee theft, supplies, inventory, and equipment are alluring as well. These frauds range from a box of paper clips to the unauthorized use of expensive furniture or equipment. The following are common types of employee misconduct relating to non-cash properties:

Unauthorized Use of Equipment

Employee unauthorized use of equipment can be a major loss for small businesses. Check out America's Best Bookkeepers

The Fraud: How about that great snowblower the company bought to clear sidewalks and the parking lot for customers? Employee Joe David decided it was better to “borrow” the company’s new tool to do his driveway than to buy or rent one of his own. While doing his driveway, his neighbors wanted to hire him to do theirs as well. Why not? Joe, the potential entrepreneur, ran the snowblower all weekend, using up all the fuel and eventually breaking the machine. There was no way the boss could clear the sidewalk and parking lot for his business Monday morning as he couldn’t get that new snowblower started.

The Flaw: Trusting employees. Leaving keys or easy access to valuable equipment. No formal policy stated or enforced.

The Fix: Set strict policies and limits for employees and enforce them. Physically secure valuable equipment. Employees may not only misuse your business equipment but may make your assets prudently “disappear.” Check out America's Best Bookkeepers

Inventory Shrinkage Can Be Reduced

Dealing with employee theft of inventory, supplies, and equipment can be an on-going struggle, depending on the type of workforce and turnover present in your organization.

The Fraud: Inventory can shrink due to plain old robbery, phony receiving reports, and unauthorized write-offs of old accounts receivable.

The Flaw: Depending on the industry you’re in, there is guaranteed to be some natural shrinkage in inventories over time due to minor errors of one sort or another. But large discrepancies are almost always due to fraud. Even during a physical count, a fraudster employee can use empty boxes, etc., to fool an auditor into thinking there are more units on the shelf than there are.

The Fix: As with other types of employee fraud, a formal policy of segregation of duties, strict supervision, voucher accounting, and all relevant internal controls must exist and be enforced at all times.

Physical counts should be recurrent and detailed, sometimes on a surprise basis. Nothing should be taken for granted. Reconciling bookkeeping records with sales invoices periodically is a good way to test the records. Frequent assessment of the perpetual inventory records is a must. Examination of financial statements to mine for margins, turnover rates, increases in costs of goods sold, and criminal receivables should be done monthly. Another type of employee fraud is committed to fake sales or purchases and often requires the support of an outside accomplice. Check out America's Best Bookkeepers

Protect Against Fake Sales and/or Purchases

Fake sales made by impostor employees may go to a phony customer or a real one who is an accomplice.

The Fraud: The property could be “sold” to a fake company with a phony purchase order and invoice and shipped right out of the warehouse to a storage facility that the fraudster employee rented to receive them. The goods can later be sold for cash, the invoice voided, and the inventory record doctored. Or, perhaps, an employee is in a unique position to manipulate purchasing and receiving systems.

The Flaw: As is commonly the case when it comes to fraud, the reason these frauds happen is attributable to the lack of separation of duties, lack of supervision, and lack of overall internal controls.

The Fix: It bears reiterating that a formal policy of separation of duties, strict supervision, voucher accounting, and all relevant internal controls must exist and be enforced at all times.

Conclusion

Unfortunately, fraud is inevitable in many organizations. Regardless of the size of the fraud allegation or the individual involved, the organization should consider having a documented policy of how fraud allegations will be investigated and resolved. 

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers
prevent fraud - Complete Controller

Finding out that your accountant is misappropriating business funds is difficult. They have complete knowledge and intellect to rig your records and books. If you doubt that your accountant is up to no good and are looking to prevent the fraud, here are some tips for detecting those symptoms: Check out America's Best Bookkeepers

Warning Signs in Behavior of Employees

If an employee starts working in a disorganized manner or remains dissatisfied and withdrawn, these are signs that something is not going well. Remember that these types of behavior can occur for all sorts of reasons and not due to fraudulent activities alone.

 

If your accountant is someone who has private access to your company books, products, and properties, and he develops new habits such as coming to the office on holidays or working for longer hours, you should take note of if you want to know if someone is misappropriating business funds. Any of these signs are reason enough to keep a closer watch on the records and its handler to prevent the fraud.

 

Accountant in financial difficulties

Accountants resort to the misusing of business funds when they are under certain emotional pressure or stress, which forces them into committing this terrible activity. Addiction to drugs, gambling, divorce, and so on, are some key symptoms that can lead to financial difficulties and debt. Then, it does not matter whether the accountant is a senior, junior, young, old, a man or a woman; they would pose a potential threat to the business. Check out America's Best Bookkeepers

 

It is the right of every individual to live in big houses, drive expensive vehicles and savor lavish vacations, provided that they can justify their means with known sources of income. There are times when people can be seen as living beyond their means. Some of the most common signs are overspending, running up credit cards, borrowing more than what can be managed, and so on. All of these will cause financial strain and can lead people to resort to illegal activities, including misappropriating the business fund.

 

All Eggs in One Basket

If your accountant advocates entire control of all the financial and management functions, there is a good reason for you to work up contingencies for the prevention of the fraud. A person in charge of entering the bill should not be responsible for applying for payments. To ensure misappropriating business funds and prevent fraud, it is important to segregate duties and establish a system of internal controls. There are occasions when owners make it too easy for accountants to commit fraud.

 

Establishing Internal Controls

One of the most common methods of reducing the risk of fraud is to set up a system of internal controls. This means the separation of job duties. Whereas it is not possible to ensure complete prevention of the fraud and misappropriating business funds but spreading the risk can cause its occurrence to decline. It can make it difficult for frauds to embezzle and increase chances of getting nabbed even if they commit.

 

 

Segregation of Duties

The rule of segregation of duties is the foundation of a strong internal control structure. To prevent the fraud, separation of responsibilities includes dividing the basic responsibilities into the three essential bookkeeping and accounting functions between at least two representatives or offices. Check out America's Best Bookkeepers

 

It needs to be ensured that you dispense money related duties among different employees. The tasks must be delegated and not confined to one person; a worker who makes the bank reconciliation should not gather checks and money from the customers and the other way around. For instance, one individual can be placed accountable for accepting stock while another worker is allocated to taking requests. Furthermore, the individual accommodating the bank transactions ought to never be the one keeping its records and the checks.

 

Leveraging Outsource

Among all approaches, the best way to prevent the misappropriation of business funds is to outsource your accounting, bookkeeping, and control capacities to an accomplished firm. This takes out the dangers related to an absence of internal controls and guarantees that each transaction is checked for accuracy.

The truth of the matter is that the more individuals you have supervising your books, the fewer chances are that your organization moves towards becoming a target for frauds. So notwithstanding giving a lot of assurance, outsourcing likewise gives you significant peace of mind.

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers