How to Protect Your Company from Accounting Fraud

In an organization, the accounting department is one of the most important department as it is responsible to keep a track of all the other departments and also keeps a check on the business transactions of the company since the start. It becomes essential that every business entity maintains a proper book of records from the very first day of business incorporation. The various books of accounts contain records that are confidential in nature and hold information regarding the various business transactions.

In today’s technological world, accounting software is used to maintain the transactions of the business. Even then, there exists a probability of fraud which can become a cause of a huge disaster to a business entity. So, it becomes very essential that a business entity protects 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:

• The Auditors who check the reports to keep a check at the entity’s financial stability
• The Board of Directors who bear the initial information in preparing the financial reports
• The current Investors as well as the Potential Investors
• The Corporate Managers
• The General Public

All the above are privy to different kinds of reports. Let’s have a look at the different types of accounting fraud.

Types of Fraud in Accounting

The different types of accounting fraud that are common in the business environment are:

1. Invoice Fraud

Here, employees end up duplicating the invoice of their employer and issue them in the name of legitimate customers. This shows that the inventory has been sold and shows a false profit to the business.

2. Accounts Payable Fraud

It is one step ahead and involves scenarios where fake companies get created that never exist. This is one of the most common type of fraud which is conducted by a business.

3. Financial Statement Fraud

Here, the main aim is to present a failing company as a profitable one. This mainly employs the tactic of falsifying the data on the various accounting records to present a better financial picture of the company.

4. Tax Fraud

It is done with the aim to avert paying taxes to the tax authority. The avoidance of tax is one of the biggest concern of the government. The tax forms a huge part of the revenue for the government and hence paying taxes can be a very important subject.

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.