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A guide to the signs of accounting fraud

Corporate accounting has been in the spotlight over the last decade as fraud perpetrated by employees caused the collapse of numerous firms. This article briefly lists some of the signs that could indicate the presence of accounting fraud in organisations.

At the personal level

Over the last decade, accounting fraud has caused the collapse of several multinational firms across the world. This situation has forced auditors to come up with stricter standards that detect malfeasance much before it drastically affects the performance of organisations. A number of symptoms can act as early warning signs of corporate fraud. Signs of fraud often revolve around individuals who handle accounting tasks and the systems set up by the organisation to process finances. Accountants Individuals such as accountants who handle a firm’s finances can display tendencies that suggest they are involved in clever accounting. Firstly, they may insist on working without proper oversight from their line managers in order to engage in activities that they know are unlawful and this prevents authorities from discovering their malfeasance. False dedication Secondly, they may display unnecessary ‘dedication’ to their work by ensuring that they are constantly present whenever there are people around who can examine the firm’s records. Such behaviour includes working after office hours, over weekends and holidays which aims at preventing any unexpected investigations. The only bridge Thirdly, they may make an effort to be the only bridge between banks, auditors and other financial agencies to manipulate records to their advantage. Such behaviour is symptomatic of accounting fraud at a personal level and co-workers can spot this in an organisation.

At the operational level

At the operational level, systems that leave too many loopholes also serve as avenues for accounting fraud and organisations that insist on maintaining them are likely to be engaged in corruption. A lack of order Firstly, a lack of order in the segregation of tasks, documentation of financial income and expenditure and verification of records often indicate that financial fraud is probably afoot. A lack of these systems often exposes a firm to fraud. Imbalances Secondly, imbalances in current financial records show that there are possible cases of business fraud. Analytical tests that return inexplicable extreme expenditures are warning signs that theft could be taking place. A final word Accounting scandals have brought down some of the best businesses in the world. It is therefore important that organisations embrace systems that expose possible problems before they become disasters.

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