Effective Internal Controls to Prevent and Detect Frauds

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Effective Internal Controls to Prevent and
Detect Frauds
Accounting To Taxes
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Most of the businesses refrain from admitting
that theyre unsafe from fraud occurrences.
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S U R V E Y
However, according to the ACFE report, every year
businesses lose 5 of their revenue on account
of frauds. 5 may seem to be very less, but on a
global scale, it comes out to be approximately
3.7 trillion. The majority of businesses fail
in the first 5 years of initiation due to
inadequate management of internal frauds.
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How to Prevent Business Frauds?

• Implement these strategies to detect and prevent
  frauds and secure your business

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01
HAVE ONLY ONE PERSON WHO CONTROLS ALL FINANCIAL
ASPECTS
Only authorized person can purchase and disburse
the amount Separate handling of deposits and
receipts Purchasing functions should be separated
from payable functions A supervisor needs to
approve the employees timesheet before payroll
preparation Paycheck should be distributed by
another person, not the same who prepares the
payroll or signs the checks.
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02
RECONCILIATION OF ACCOUNTS

• Agency account reconciliation should be done by
  an independent person, not the same who is
  handling bookkeeping or signing checks.
• Examine the canceled checks and keep track of the
  vendors.
• To ensure checks are not out of sequence, examine
  bank statements and canceled checks.

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03
RESTRICT USERS ON USAGE OF BUSINESS CREDIT CARDS
Restrict the personal use of credit cards Limit
your account with credit card companies or
vendors Update your employees about the usage of
the card and the type of purchases that can be
done. Make it mandatory to submit genuine
receipts for all purchases Every month ensure to
examine the credit card transactions with
corresponding receipts.
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REGULARLY ANALYZE FINANCIAL ACTIVITIES
Compare actual revenue and expenses Check
explanation of variation in budgeted amount, if
any Review the check register and general ledger
regularly Have an independent employee/auditor
to explain financial statements to
management Opt for outsource accounting services
to get reports from offshore experts who have no
biased interest in your business.
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05
SECURE YOUR PETTY AND OTHER CASH FUNDS
Limit the number of employees to access petty
cash Keep cash in the locked drawers Restrict the
petty cash replenishment amount to an amount that
requires to be replenished every month. Keep
late funds separate from petty cash funds
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PROTECTING CASH AND CHECKS AGAINST MISUSE

• With no delay, keep the record of checks when
  received in their original form.
• Use numbered receipt book to issue a receipt of
  cash.
• Maintain appropriate documentation like cash
  receipts, receipts book, etc.

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COMPANY ASSETS
Make a policy that only after the signature of an
authorized person, the employees can use the
companys assets. Make sure company assets are
used for only office purpose. Maintain vehicle
log book that includes trip purpose, odometer,
driver name, date, etc. Maintain a record of
equipment/inventory. An authoritative person must
check the log book periodically.
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REPORT
ACFE reports that 3 frauds are detected with
external audits and 42 with hotlines, out of
which 80 are fraud cases.
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If you are still not sure regarding what
anti-fraud measures will work for you, then seek
help of an anti-fraud consultant or outsource
your accounting processes to offshore
experts. There operations and reports are not
influenced by your internal employees, which
would ultimately help your business to succeed
without chances of frauds.
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