How to find and recover from financial or cyber fraud
As accountants, we’ve heard horror stories from our clients about untrustworthy or negligent accounting and bookkeeping firms, and the financial and cyber fraud that can sometimes result. Learn how to identify fraudulent transactions and recover if they happen to you.
As a small business owner, you may quiver at the thought of inviting an outside party into your finances. If their work isn’t being regularly reviewed, you run the risk of either errors or intentional actions that allow fraud to happen. In the digital age, cyber fraud and financial fraud commonly occur, in some capacity, to most business owners. Take these steps to identify it if it does happen and recover from it to get your business back on financial track.
How to identify fraud
Perform bank reconciliations
To detect (and mitigate) financial fraud, first and foremost, perform bank reconciliations at least monthly—by ensuring the transactions in your bank statements match the records in your accounting system. Then, periodically review your bank reconciliations, which should include a summary of uncleared items (i.e., transactions recorded in the accounting system but not yet reflected on the bank statement). Any discrepancies will signify accounting errors or cover-ups.
Request account schedules
If you’ve reviewed a profit and loss (P&L) statement with your accountant or bookkeeper before, you may have wondered about all of the transactions that make up a given line on the report. Account schedules, compiled by your accountant or bookkeeper, are meant to fully summarize all of your transactional activity in a given category over a certain period of time. If one category’s spending seems to be higher than it should be, asking for a schedule of that account can help you understand its balance and approve all of its transactions.
Conduct audits and reviews
If Options 1 and 2 don’t really work for you or your company, you may want to bring in a third-party firm to take a look at your books. They’ll ensure that all of your transactions have been properly recorded, without any hiding sins—intentional or errant.
Cybersecurity and training
Fraud can result from a cybercriminal infiltrating your company and accessing its email, phone, or bank information to steal funds. It happens more commonly than you might think! Implementing basic cybersecurity measures to safeguard against threats such as password theft and phishing, and training staff, owners, and consultants on basic fraud prevention, can save you the headache—and a lot of money
What you can do to recover from fraud
Choose the right insurance
Particularly considering that financial fraud is on the rise—whether a service professional or a scammer is responsible—it’s wise to have insurance coverage. Make sure you get the right coverage by consulting with your insurance broker on the options they offer for cyber fraud and financial fraud.
Build good banking relationships
The funds from fraudulent transactions may be recoverable, but that likelihood depends on the strength of your relationship with your bank. Depending on your circumstances, your bank manager might, or might not, be helpful in investigating and/or retrieving the monies from fraudulent transactions.
Hire a great accountant
If you’re seeing occurrences of fraud in your small business and your accountant isn’t identifying them or helpful in resolving them, you probably need to find a new accountant. If you can’t recover the funds from fraudulent transactions, you’ll need an ally for your business that can help you plan for cash flow while your business recovers. Someone who can leverage an established process to identify fraud as quickly as possible, help investigate and resolve it, and implement processes to prevent it in the future will allow you to move past the intense stress of financial fraud and into the next era for your business.
If you’re concerned about fraud in your small business or have been burned in the past by third-party accounting firms, know that you’re not alone! Many of our clients have experienced this before and gone on to see their businesses thrive more than ever. We can help you navigate both the identification of, and recovery from, fraud in your small business. You don’t need to go through it on your own—contact us today.