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Fraud Detection and Prevention in Accounting

Fraud is a serious problem!

Organizations lose 5% of their revenue to fraud each year, according to the Association of Certified Fraud Examiners (ACFE), with losses exceeding $3.6 billion. Asset misappropriation is the most common occupational fraud, followed by corruption and financial statement fraud. The typical fraud case takes 14 months to investigate; losses average $8,300 per month. The average loss per case is $1,509,000 worldwide, and $563,000 in the United States.

Think larger corporations are most at risk? Think again. ACFE reports that small businesses lose almost twice as much money per year compared to larger companies.

Fortunately, as the data suggests, the United States has mitigation measures, including federal and state laws, governmental oversight and fraud detection investigators. Yet fraudsters have been consistently effective through the years, even with moves toward digital payments and technologies designed to thwart them. Number of cases and financial impact have held steady over time.

Several procedures and controls are in place to combat fraud in accounting:

Fraud Prevention Plan

ACFE reasons that "fraud can flourish when employees believe they won't be caught." Thus transparency about anti-fraud controls and evidence of active detection through audits and monitoring software send a message to would-be criminals that they will be caught.

A plan encompasses all of the action items below and is disseminated to key stakeholders, if not all personnel within the organization.

Create a Culture of Integrity

In conjunction with a documented plan, senior management need a zero fraud-tolerance culture. Expectations for ethics and accountability must come from the top and be promoted with broad reach and high frequency. Because employees take cues from their superiors (all the way to the C-suite), lack of integrity trickles down through the ranks. For this reason, an open door policy that encourages whistleblowing is a key cultural component. Employees should be able to make anonymous reports about questionable practices as well.

Code of Conduct

This measure was shown to reduce the cost of fraud by 56% — the greatest reduction generated with any fraud controls studied in the Report to the Nations. Employees must know that they will meet high standards, which include ironclad avoidance of fraud.

Specific Detection Controls and Personnel

Transparency in detection controls is a highly effective deterrent. Controls may include software that monitors emails and financial activities, unplanned audits and surprise fraud assessments.

Employing experts in fraud control furthers the perception that getting away with wrongdoing will be impossible. Publishing information on LinkedIn, as well as communicating with recruiters about these measures, helps make organizations less attractive to crooks.

Ongoing Employee Training

Organizations that conducted fraud training saw a 41% reduction in money lost per case and a 50% reduction in duration of fraud campaigns before discovery. Employees should be trained in red flags and what constitutes fraud, and they must be encouraged to report suspicious activity without fear of retribution. Also, someone within the organization, or perhaps a contracted third party, should be available for advice when uncertainty looms.

Training Starts in the MAcc Program

The Emporia State University Master of Accountancy online program includes an elective, Fraud Examination, that explores forensic accounting-related fraud, asset theft and financial statement misstatements. Topics include the nature of fraud, fraud prevention, detection methods, investigation procedure and types of fraud.

Given the high cost of fraud in financial loss and ruined organizational brands, this course is one more component that employers value in graduates.

Learn more about Emporia State University's online Master of Accountancy program.


Sources:

AccountingToday: Organizations Lose 5 Percent of Revenue to Fraud Every Year

ACFE: Report to the Nations 2020 Global Study on Occupational Fraud and Abuse

CGTeam: Six Strategies for Fraud Prevention in Your Business

AICPA Store: 10 Steps to Detecting and Deflecting Fraudulent Financial Reporting

ACFEInsights: Beyond Checking the Boxes: Establishing a Fraud Prevention Plan


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