Understanding the Effects of Employee Fraud on Your Accounting System

Accounting FraudJohn Verver recently wrote an article posted on CFO.com about the top areas of concern with regards to employee fraud.  It’s a great article, which made us want to draw attention to it, and it also got us thinking about the subject when it comes to what we do here at AcctTwo.  The article cites a study conducted by the Association of Certified Fraud Examiners (ACFE), and states alarmingly that “…the median loss of each instance of employee fraud in their study was $140,000. More than one-fifth of these cases caused losses of at least $1 million,” and that, “an average organization loses 5% of its revenues to fraud — a staggering sum.”  The article goes on to point out that this has not only a serious financial effect on a company, but it also has a cultural effect as well.  It’s a morale killer and can create a corporate culture of questionable ethics which can permeate every part of an organization, costing a company even more in efficiency, productivity, reputation, and quality.  Here’s a link to the article:

CFO.com Article:  The Top Five Areas to Monitor for Employee Fraud

“According to the ACFE report,” Verver goes on to say, “the majority of asset misappropriation occurs in the procurement, payment and expense areas.”  At AcctTwo, we’ve come to find some key factors that contribute to this type of internal fraud.  Many small to midsized companies’ accounting systems can be described as follows:

  • Management relies heavily on an internal employee or an external bookkeeper to keep the books, but isn’t very involved in reviewing the accounting records.
  • Accounting records are not produced or reviewed very frequently.
  • Financial statements are often prepared every few weeks on an irregular basis, and are usually only available long after the activity in question has already occurred.
  • Bank accounts are not reconciled regularly, and when they are, original bank statements and other original supporting documents are not always used. As a result, documents are easily forged or altered.

We’ve  found that implementing Intacct’s cloud-based accounting software provides a number of ways to confront these problems.  Intacct helps prevent fraud with strict permissions, separation of duties and financial controls.  Intacct’s powerful reporting capabilities provide tremendous oversight in real-time and take reporting out of the hands the few, creating greater trust and transparency.  AcctTwo’s Business Process Outsourcing helps further relieve the burden and risks of a disorganized back office, allowing our clients to focus on the core competencies of their business. We provide the people, processes, technology and office facilities to perform these functions, while allowing our clients to collaborate interactively through an on-line portal. We solve the following challenges:

  • Headaches of attracting, retaining and effectively managing back office personnel with the necessary oversight
  • Inability to realize economies of scale and segregation of duties due to limited headcount: employees must wear multiple hats, creating an environment where errors are more common and fraud is harder to catch.
  • Need for immediate and scalable back office processes and systems for high growth companies
  • Dealing with employee turnover in the back office

John Verver’s article smartly recommends increased oversight and fraud testing to catch fraudulent activity.  We would additionally recommend implementing Intacct’s best-in-class accounting software coupled with AcctTwo’s industry expertise to provide the controls and reporting necessary to combat employee fraud and maintain a culture of integrity and accountability.

About AcctTwo

Headquartered in Houston, TX, AcctTwo is a leading consulting firm and reseller of cloud-based accounting and financial management software. AcctTwo’s sophisticated systems solve the issues growing middle market companies face today. AcctTwo also outsources back office processes, allowing our clients to focus on the core competencies of their business.  For more information, please visit http://www.accttwo.com or call 713-744-8400. Connect with AcctTwo on LinkedIn, Twitter, Facebook, Google+, or Youtube.

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AcctTwo and the AcctTwo logo are trademarks of AcctTwo Shared Services, LLC. All other company and product names mentioned herein may be trademarks of their respective owners.

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