As many of us are aware, fraud is on the rise, and companies are not immune to the rising fraud epidemic. On average, it is estimated that organizations lose around 5% of gross revenues and what is even more startling, is that approximately 30% of fraud cases took place in small businesses (with less than 100 employees), according to a 2016 fraud report published by Report to The Nations.
Additionally, the 2016 fraud report revealed that small businesses suffered the same median loss as much larger organizations with more than 10,000 employees. Out of those small business fraud victims, approximately 60% of them did not recover any of their lost funds. Small businesses in general are much more vulnerable to fraud than larger organizations due to the fact that they have fewer fraud prevention tools or controls in place.
What is the answer? While it is nearly impossible to prevent all fraud, it is certainly possible to lower fraud risks and catch them before they become larger problems using low cost technology options, which can be implemented through an organization’s the accounting department.
The Two Most Types of Fraud and How to Identify Them
Financial Statement Fraud
As most business are most likely aware, financial statement fraud is one of the more expensive fraud types and committed using a variety of techniques. For example, fraudulent journal entries through either rounding dollar amounts weekend entries.
To catch these fraudulent transactions, an accountant can use a Microsoft excel (a free tool) to separate transactions rounded to the nearest dollar and which transactions occurred on Saturday or Sunday. By creating the right formula, suspicious transactions can be filtered and identified.
Another common way fraudsters commit fraud is through billing schemes such as duplicate payments. How this works is they make multiple payments on one invoice. When legitimate companies receive duplicate payments on an invoice, they usually contact the customer and ask them how they would like the “over payment” handled. The fraudster will then obviously ask for a refund, will intercept the payment, and will negotiate the refund check payment.
Identifying duplicate payments and investigating into them further will help an organization detect and prevent potential fraudulent activity. To help with this, Microsoft access has a tool called “query wizard” which happens to be a very effective feature for identifying any duplicate transactions. Most computers with Microsoft tools can access this feature for free or for a small fee and is definitely worth checking into.
Additional Ways to Use Technology to Catch and Detect Fraud
If an accountant or bookkeeper doesn’t have the expertise or experience to conduct fraud analysis, try purchasing and using a program such as ActiveData, an add-in that can be purchased and integrated with excel. The software uses an automated process that is pre-defined and essentially what it does is stratifies financial data. It costs $249.00 for each user, but is well worth the investment since it is almost like fraud-detection on auto pilot.
While catching and preventing fraud can be somewhat time-consuming, putting the right system in place could help prevent it and make it simple to catch. Businesses (both large and small) can use technology for next to nothing to potentially track down and prevent fraudulent transactions before they happen or before they get out of control.