In an organization, the accounting department serves as the most crucial one that keeps a check on the business transactions since the initial point. It becomes essential that a business entity maintains a proper book of records from the very first day of business incorporation. The book of records holds confidential information regarding the business transactions. In today’s technological world, accounting software is used to maintain the transactions. Even then, there exists a probability of fraud which can cause a huge disaster to a business entity. So, it becomes very essential that a business entity protect its book of accounts from any kind of fraud. By the end of this article, you will get a clear idea as to what accounting fraud is all about and how it can be prevented.
What Is Accounting Fraud?
A business entity needs valid transactional records for business growth. Any change in the transactional values or misrepresentation that stands outside the set regulatory framework that represents a false picture of the organization and ends in a loss that needs to be borne by an organization is known as accounting fraud. It communicates false information to:
- Auditors who check the reports to keep a check at the entity’s financial stability
- Board of Directors who bear the initial information in preparing the financial reports
- Investors and Potential Investors
- Corporate Managers
- General Public
Let’s have a look at the different types of accounting fraud.
Types of Fraud in Accounting
1. Invoice Fraud
Here, employees end up duplicating the invoice of their employer and issue them in the name of legitimate customers.
2. Accounts Payable Fraud
It is one step ahead and involves scenarios where fake companies get created that never exist.
3. Financial Statement Fraud
Here, the main aim is to present a failing company as a profitable one.
4. Tax Fraud
It is done with the aim to avert paying taxes to the tax authority.
As we can see that all possible measures can be used to create a misrepresentation, it becomes extremely important for a business entity to take appropriate steps so as to avoid accounting fraud scandals. How? Read below to get the answer.
How to Prevent Accounting Fraud?
To initiate accounting fraud prevention, one can follow the below-mentioned bets practices:
- Know your employees
- Segregate accounting functions
- Make employees aware of the reporting system
- Implement internal controls
- Keep an annual check on the accounting books
- Hire experts
- Reconciliation of bank accounts and management review
- Review the expense reimbursements
Thus, you have got a clear idea on how to protect your company from accounting fraud. Now, it becomes extremely important at this point that you should be well-versed with the legal processes while doing so. At this point, the best you can do is having a word with consultants who can provide opt solutions to avoid accounting fraud. Being one of the best a business and tax consultants in Dubai, JAXA takes care of the accounting statements of clients and deliver services timely, helping entities to identify such frauds and deal with them accordingly. If you are planning to initiate the same, do contact us – we’d be glad to assist.