Small emerging growth companies often have limited resources and limited staff performing critical functions in accounting/finance. Below is a list of tips that might indicate a closer look at your records for accuracy or the opportunity for fraud.
- A spike in payroll expense without a reasonable explanation
- Accounts receivable is growing but your sales are flat or down
- Vendors who are being paid but you are not familiar with them
- Human Resource records are minimal or non-existent for employee pay changes
- Expense actual vs. budget shows a variance that is not reasonably explained
- Prepaid expenses are growing consistently month to month but most expenses are flat or down in your income statement
I read an article recently where the same accountant who posted and deposited customer receipts had embezzled $126,000. How?
The employee deposited customer checks to their ATM which is not always checked thoroughly the banking system. The accountant then marked the corresponding invoice as “paid” and used the subsequent checks that came in for newer invoices. This process could only go on for so long because the accounts receivable would grow from a larger pool of unpaid invoices. Just as the accountant was about to leave the job, the embezzlement was discovered.
It was discovered by auditors checking on the cycle of a paid invoice; from receipt of check, to posting payment to the invoice, to depositing the check at the bank. Some invoices shown as “paid” did not have a corresponding deposit. Getting a copy of the deposited check from the customer revealed a different account number from the company’s account and discovered it was a personal account of the employee.
Here’s to a system of processes and activities that represents the phrase “trust but verify” to help you mitigate any circumstances where the health of your business is compromised!
Mike