Financial Statement Fraud: Warning Signs & Prevention Tips

Financial statement fraud is one of the most widespread white-collar crimes in today’s world. Professionals willingly falsify the financial statements of an individual or a company. With this move, they try to deceive stakeholders and create a false perception of their economic well-being.

It enables them to receive some benefits, such as appreciation from the company, tax relief from the government, and funding from interested investors. It is an illegal practice that can harm all parties involved in a business deal or financial transaction. You can detect and stop such financial fraud and protect yourself from being cheated. Let’s see how.

Financial statement fraud takes place due to multiple reasons. It may include the following:

• Constant pressure from the company to meet highly ambitious business targets. If individuals fail to achieve their goal in a particular time frame, they may simply falsify the financial data. It lets their bosses feel that the target has been achieved. 
• Weak internal controls in the company. If there is no strict supervision in everyday business activities, the chances of financial statement fraud are high. 
• A good number of individuals are extremely motivated by personal benefits. They can go to any length to get their hands on easy money. As a result, they might falsify the financial statements. 
• Many accounting professionals working with companies misrepresent data to get loans or investments from famous investors. 
• The fear of job loss also compels individuals to misappropriate financial statements.

There are many ways to commit financial statement fraud. Here are some known methods used by swindlers:

• Excessive exaggeration of real income in financial statement reports.
• Concealing vital information about bank transactions, invoices, incoming and outgoing payments of a company or individual, etc.
• No sharing of important financial data with stakeholders.
• You are not allowed to raise questions about the submitted financial statement records,
• Missing bills, invoices, auditor’s remarks, etc, in the financial statement report. 

The smooth management of financial resources works as a foundation for the success of any organization. As a company CEO or owner, you must act like a financial watchdog and prevent the wrong thing from taking place in your organization. Here are some recommendations from us. 

Trust But Verify
Most business people don’t get involved in everyday accounting activities. They consider it the responsibility of accounting and audit professionals. It is a wrong approach that gives birth to financial statement fraud cases. Generally, busy company owners don’t have sufficient time to track everyday transactions. But they must have a proper mechanism to verify and approve all important expenses. It will help them to prevent unauthorised transactions and the preparation of fake financial reports. 

If possible, go through the financial statement carefully and verify the data with the physical presence of goods and services. It is quite effective to detect the difference between the actual stock and the financial statement. 

Digitize Accounting & Payroll.
Gone are the days when accounting and payroll management were done manually. Take your business to the cloud platform with inbuilt features for seamless accounting and payroll activities. This will enable you to log in to the IT system of your company at any time and verify the internal and external movements of funds. If you find something suspicious, take immediate action and pause the unauthorized transactions for further verification and clearance. 

Access Control
Determine the roles and responsibilities of all professionals in your organization and give them access rights (to the company’s resources) accordingly. 

• Consider having a primary and secondary current bank account to meet business expenses. Always cross-check and verify every transaction to prevent financial fraud.
• Activate 2-step verification on all your bank accounts, business emails, WhatsApp communication, etc. You should get SMS and email notifications for every login to your company’s IT system. This will enable you to track accounting activities in real-time and thwart financial fraud. 
• Document all financial activities in the soft and hard versions. It will help you to look for financial statement manipulation done by criminals and take the necessary action.

Internal And External Audits
From time to time, you must invite internal and external auditors to examine all money related activities of your organization. Give them the right to question the legitimacy of transactions, invoices, collection, and management of financial data, etc. It will help you to discover all possible financial statement fraudulent activities and take preventive steps.

Financial statements fraud is quite damaging to both individuals and companies. They lose reputation, hard-earned money, people’s trust, and their ability to conduct everyday transactions. 

Online financial fraud is a reality, and no one is immune to it. If you experience a scam, contact us at Sky Recoup. We will act fast, probe it, and increase the possibility of the recovery of stolen funds. Our money recovery experts may use different methods and tools to investigate financial crime and help you reclaim what’s yours. 

Detecting financial statement fraud is directly linked to your economic stability. Timely action can prevent large-scale financial losses and help you stay afloat in tight situations. Use these recommendations to track and eliminate financial statement fraud with ease. Sky Recoup is your reliable companion when you need to investigate financial scams and recover from monetary losses.