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Month: February 2017

How To Protect Your Organization From Fraud

How To Protect Your Organization From Fraud

I had a professor who worked for the FBI for a number of years, he told a story about ethics in the workplace and that the old saying among field offices was if you left a $5 bill on your desk while you were away it would still be there when you came back.”   He chuckled and then

Photo credit: Mark Stone

mentioned that no one ever tried it because they knew it would not be there when they came back.  The point of the story is not to disparage the amazing work done by the FBI and the truly outstanding agents that work there, instead it is to highlight that no matter how ethical the people are that work for you-you should always be suspicious of occupational fraud within your organization.  I’m not suggesting hyper vigilance, more so putting into place policies, procedures, and best practices to prevent or detect fraud.

“Small organizations had a significantly lower implementation rate of anti-fraud controls than large organizations. This gap in fraud prevention and detection coverage leaves small organizations extremely susceptible to frauds that can cause significant damage to their limited resources.” – ACFE Report to the Nation 2016 Executive Summary

First, it is important to understand some key elements of fraud, or the fraud triangle, wherein nearly every type of fraud will display these element. First is motivation, this is almost always monetary, such as someone who has a gambling problem, a spouse with high medical costs, or just an appearance to maintain.  Secondly is the opportunity, which is pretty obvious in most cases, if the chance exists for someone to commit fraud then eventually someone will.  Lastly is the rationalization where the fraudster justifies his actions to them self.  Usually they believe they’re going to repay the funds, or that they’ve been so mistreated by the organization that they deserve it, or that the company makes so much money no one will notice nor will it hurt the company.  Just understanding these elements alone will not help you necessarily prevent fraud, but at least they will help you understand the areas that are potentially at risk.

The truth is in some cases there is almost no way at all to prevent fraud entirely, such as cases of collusion, bribery, or any other fraud that involves more than one party, which is why it is extremely important to focus on detection of fraud once it is happening.  According to the Association of Certified Fraud Examiners, the number one detection method of fraud is tipsters.  That’s right, more fraud is discovered by way of another person coming forward to report the fraud than internal audits, external audits, or any other method for that matter.  This would suggest that the most important detection resource any organization can have is a dedicated, anonymous tip line that is monitored frequently.  It is also important to note that your HR department, or the person who conducts exit interviews, if you’re collecting them, can be a valuable resource.  This is because people like to air their grievances when leaving, and often these grievances of other employees can display red flags for fraud.

Some of the other methods for preventing fraud that your company should be engaged in are; strong internal controls with separation of duties, which can be the first line of defense for preventing fraud in the first place; external audits-even if your company does not need one, fraudsters fear that external auditors will detect fraud, and thus regular external audits help to prevent fraud; and recognition of warning signs such as an employee who has a flashy car but isn’t compensated appropriately for the car (or other flashy purchases), employees who never take a vacation or turn over duties, especially those managing accounts or accounting functions.  It is important to remember that you never want to falsely accuse any one of your employees of wrong doing, which is why it is important to take all tips of fraud seriously but to emphasize objective fact finding and healthy skepticism.  If you truly believe there is predication of fraud you should hire an outside investigator, such as a forensic auditor, to help with the investigation.

Please take the opportunity to follow this blog or comment below.  Also, if you are interested more in protecting your company from fraud and strengthening your internal controls, contact a CPA who should be able to help guide you through the process.  Linked here is the ACFE Report to the Nation Executive Summary if you would like more information on fraud.

The Importance of Strong Communication by the Accounting Team

The Importance of Strong Communication by the Accounting Team

George Bernard Shaw once stated that “the single biggest problem in communication is the illusion that is has taken place.”  Often this is most true regarding accounting professionals and those working in accounting for organizations that have dedicated departments.  Unfortunately as an organization grows this problem is exacerbated by the number of different internal customers the accounting department has to deal with, and the complexity of the types of transactions that are occurring.  If you want to have a successful organization that utilizes the expertise of the accounting department to add value, and equally important, maintain an environment that emphasizes the systems and processes over individuals, strong communication is paramount.

There’s a reason why accountants and accounting professionals are typically viewed as introverts, quiet, secluded, or not personable, because a lot of us are.  That’s not to say that introversion is more prevalent in our profession, or that if it was that it would be a bad thing, but it is the leading stereotype.  There are probably a number of reasons for this and since I’m not a psychologist I won’t spend too much time trying to investigate them, but I will suggest that from my experience much of the communication gap can be overcome by anyone who is dedicated to being a good citizen of the organization in which they work. One of the first, and most important aspects to remember about being an accounting professional is that we must be customer service oriented.  Everyone has a customer, outside of the obvious and defined customer, the people who work with us inside the organization we work for should be treated exactly as the external customer who calls wanting to pay an invoice.

businessmen talking on a homemade can phone
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One of the greatest benefits of outstanding communication is that it typically saves everyone involved any extra work, or headaches.  Notice I’m not talking about good communication, but outstanding communication.  How do I define outstanding communication?  Understanding, and positive reinforcement through the feedback loop.  This doesn’t mean that everyone will walk away understanding everything, but it means that the internal customers, or our coworkers who deal with the accounting department but do not work in it, ask the right question to receive the right answer.  Here’s a way to think of it; have you ever had an email chain of someone asking a question only to have them ask a different but similar question after you answered it?  Have you had this happen multiple times regarding the same issue?  And even after the person asserted that they finally understood, something still wasn’t correct when the transaction got to the accounting department?  Take a breath, this will be tough to hear, and self realization is important here, but this means you did not do your job communicating effectively.

So, what does outstanding communication look like?  The truth is there is no exact formula, and for most people it will probably be a little different, but there must always be a confirmation that the person you are communicating with understands.  For me I always engage in what I consider to be best practices, first I try to explain everything in person, one-on-one engagement is always going to be more effective than a phone call or email, because you are able to pick up on non-verbal cues that let you know a person who may say they understand actually does not.  Which brings me to my next point, examples, especially in person are extremely effective.  Most of us do not have any difficulty envisioning the nuanced complexities of accounting, but that’s also one of the traits that sets us apart from those who we are trying to communicate with, and we always have to remember that they can’t see what we can see unless we actually show them.  Lastly, and this may be one of the most important, remember to leave the feedback loop open, which means to not only let them know that you are willing to answer more questions about the subject, but that you actually welcome it.  I’ve worked with many accounting clerks over the years and unfortunately there is a tendency for those with a strong personality to condescend and belittle people who do not understand the subject, this helps no one, and although it is not the majority of people in the accounting profession, it only takes one in your organization to ruin the system for everyone.

The best piece of advice I can give to everyone who works in the accounting profession regarding communication is to always behave as if you are discussing the issue with the CEO of your company, of course you would want them to fully understand the issue, and of course you will give them a feedback loop in case they have other questions, this is how we should treat every single person we encounter.  Please follow my blog or my twitter feed, @biglifemark, and feel free to leave a comment below, I am always excited to engage with others.


Accounting and Finance research blog

Accounting and Finance research blog

This blog is intended to help organizations increase the value of their accounting and finance through innovation, research, and best practices.  I will focus on providing unique content that can help organizations make small but impactful changes to increase the efficiency, security, and effectiveness of their companies accounting procedures.  Many organizations are great at providing a service, product, or area of expertise but often don’t understand how to increase the value of their accounting department to aid them with reducing risk through internal controls, having readily accessible financials to bring in capital through outside sources, audit readiness, and internal communication.


Photo Credit: Mark Stone

The purpose of this blog is to share industry knowledge, expertise in accounting and finance, and current research to give organizations a foundation for practices that can help them find greater success.  Whether you are a sole proprietor or company with multiple accounting reps, I will cover topics that can enhance the accounting procedures and practices of your business.  My intent is to help you add value to your business, and to yourself as an owner, or supervisor with an understanding of complex ideas surrounding challenges within an entities accounting environment and how to decipher what the correct procedure or practice is to handle these challenges.

Some of the specific topics you can expect this blog to contain in the coming weeks and months are how to communicate with internal customers of the accounting department, methods in data analysis regarding fraud, how to have strong internal controls regardless of the size of your organization, adopting change before anyone else, and many others.  Hopefully owners, managers, other accounting professionals can utilize the information given here to help create a better accounting system within their own entity.  I invite feedback and comments and hope to connect with others, and welcome topic suggestions for those who are facing challenges in their accounting environment.  Please follow and share this blog with others who might find it useful in adding value to their organization.