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How Cloud Accounting Can Help Fight Fraud

How Cloud Accounting Can Help Fight Fraud


by


Cloud-based solutions offer greater tracking and control of accounts.

The numbers are fairly staggering. The U.S. Chamber of Commerce figures that employees steal approximately $400 billion from businesses each year. The Association of Certified Fraud Examiners (ACFE) estimates that a typical company loses about 5 percent of its annual revenues to employee fraud and theft.

To add insult to injury, small businesses are disproportionately victimized, and it typically takes about 18 months before fraud is even detected.

Hidden Signs of Trouble

Due to its nature, most fraudulent activity cannot be observed directly. Fraud can often be spotted indirectly through “symptoms” or red flags, such as:

» Cash shortages
» Unauthorized or unusual electronic banking activity
» Unusual order cancellations after the end of an accounting period
» Customer complaints regarding payment applications
» Customers who are unable to be contacted (or located)
» Unusual levels of customer discounts
» Duplicate shipments
» Recorded assets that cannot be located
» The “employee who never takes a vacation”
» Sales dated subsequent to receipt of customer payments (where prepayments are unusual)
» Unusual or unexplained variances in accounting records
» Missing or altered accounting or operational records

Failure to implement basic financial controls can create an environment ripe for internal fraud. The good news is that there are a number of easy steps your business can take to prevent these crimes of opportunity.

Instituting appropriate management oversight and properly compartmentalizing duties are the first steps to prevent fraudulent activity. Separating operational functions makes it more difficult for fraud to be perpetrated. A big problem in many cases is that an owner or manager is simply too busy to look over everything, so implementing appropriate management oversights is critical.

Additionally, preventing unauthorized access to your corporate bank accounts is an important component to fraud prevention.

How Cloud Services Can Help

More and more small businesses are migrating to cloud-based accounting services to help solve these issues. Most cloud accounting systems can be configured to control who has access to bank accounts and to provide an electronic audit trail showing which user performed each transaction and when.

Fraud protection is increased by the separation of duties afforded by online cloud-based accounting service solutions. These service solutions provide flexibility to design a workflow that meets specific business needs.

Moving to an online cloud-based accounting service solution allows businesses to eliminate manual tasks such as data entry, envelope stuffing, filing and check runs. With an automated bill management system, all bills can be paid efficiently, reducing the amount of time spent on accounts payable. It also provides advanced cash flow management, which makes it easier to project and control cash flow.

Automated bill management systems also reduce the risk of employee fraud by paying vendors electronically, masking account information, reducing risk of information theft, routing bills electronically to designated approvers and preventing improperly mailed checks.

Cloud-based accounting also comes with the added benefit of providing company executives with financial information on a timely basis. It offers the ability to look at key performance indicators on a financial dashboard, on demand.

Even with these controls in place, fraud prevention starts at the top. Company executives must demonstrate that they have created an operating environment of integrity and compliance to reduce the perceived opportunity for fraud to occur, and make sure employees understand it will not be tolerated.

Margo Hoegler

Written by

Margo Hoegler, CPA, is a manager in the accounting services department at MarksNelson LLC. She has more than 15 years of public accounting experience, assisting business owners with financial statement preparation, cash management and forecasting. (816) 743-7700 // mhoegler@marksnelsoncpa.com

Categories: Finance

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