Accounting fraud is the act of deliberately misleading those outside the business, like investors, shareholders, or the Government, into thinking that the business is performing better than it really is. Usually through manipulation of financial information.
A company or individual might commit accounting fraud by exaggerating profits or hiding expenses.
Small businesses are more vulnerable to committing, and being the victim of fraud, than larger ones. This is due to fewer anti-fraud measures in place within smaller businesses.
If you are found guilty of committing accounting fraud you could face a prison sentence as well as crippling fines that leave your finances in a much weaker position.
Often, in a small business, only a single individual is responsible for bookkeeping, meaning that mistakes and genuine fraud go unchecked and unnoticed.
Accounting fraud only occurs when the discrepancy on the books is a deliberate falsification of a company’s financial records, rather than an honest mistake.
However, mistakes can be just as damaging to a company’s reputation as fraudulent behaviour.
The easiest way to protect your business from accounting fraud
The simplest way to avoid accounting fraud is to hire a respectable accountant to handle your bookkeeping.
Outsourcing your bookkeeping to a long-standing and professional accountancy firm means your business’ financial statements will be meticulously scrutinised before they are published, so they are far less likely to contain mistakes.
Employing a professional accounting firm to perform monthly, yearly, or ad hoc financial audits can also reduce the chances of mistakes and fraud occurring.
An audit is an inspection of your finances, providing confirmation that your accounts align and your statements will be accurate. They can also help to spot any existing weaknesses or risks in your current accounting procedures.
By performing financial audits, your accountant can prove that your records are an accurate representation of your business’ financial situation as well as highlighting any errors or miscalculations. External audits greatly protect you from accusations of accounting fraud.
A reputable accounting firm can also give you advice on training your employees and business partners to identify fraudulent activity within the business. This is a crucial way of preventing fraud at the source.
Furthermore, you may wish to outsource other key financial functions, such as your payroll, to help prevent tax related issues further down the line.
In summary, outsourcing your accounting functions is the best way to prevent several financial mishaps, including accounting fraud, before they even emerge on the horizon.
To find out about how your accountant can help you prevent fraud, get in touch with our team today.
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