How To Spot Accounting Frauds

If you are an employer or employee and you suspect something may be wrong with your company’s accounting practices, you need to know how to spot accounting frauds well enough to file a formal complaint or even bring it to someone’s attention. Some examples of accounting frauds are listed below, and you can look for any of these or other situations that may signal problems with your company’s financial records.

1. Concealing operating expenses. Reporting that it costs more or less to maintain a company is one of several accounting frauds that a company may use. One way to determine if this may be a case with your company is to look at the operating expenses reported by similar companies, and see if there are noticeable discrepancies between your company’s figures and those of other companies.

2. Reporting higher sales figures. Unscrupulous accountants of companies which are in the sales business often commit accounting frauds when they “adjust” sales figures. You should be familiar enough with your company’s daily activity to know approximately how much is made through sales on a daily or weekly basis. Further, it is not that hard to keep up with daily or weekly sales for a short period of time, then compare your figures with those reported by the company. Even allowing for certain situations, there should not be too great a gap between your figures and the company’s.

3. Billing schemes. These types of accounting frauds may be a little harder to spot, but they can be discovered. Again, having an idea of how much goods or services cost in your company and comparing those figures with invoices and other records should clue you in to whether or not the numbers are being manipulated.

4. Fraudulent disbursements. Accounting frauds using fraudulent disbursements can be varied in their scope and type. Non-existent employees, suppliers, and other fake accounts payable entries are all different ways to hide fraudulent disbursements.

5. Understating depreciation. Accounting frauds in this area can happen when a company fails to report exactly how much certain items have depreciated, or lost value, over a specific period of time. If it is evident that a product is past its prime, but it is still being reported as in good condition, then that can be a sign that something is not right.