How to detect fraud in your company’s finances?

Fraud can be incredibly damaging for a company. There’s the obvious financial loss, but if fraud’s allowed to happen inside a company’s environment, then it can severely damage the business’s reputation and staff morale. Below, we explore how you can detect fraud inside your company’s finances/

Most common types of fraud

To detect fraud, you first need to understand the different types of fraud there are. Employee fraud is one common situation. This usually occurs when a high-ranking employee from the financial department is able to circumvent company procedures and transfer money into an account they control. 

Another common scenario is CEO fraud, where a financial officer will be tricked by emails impersonating the company CEO. If successful, the emails can persuade an employee to transfer money to an external account. 

Invoice fraud can be especially damaging. In this situation, hackers will infiltrate the digital invoicing system and will alter account numbers to siphon money away from employees or contractors. 

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Fraud detection tools and techniques

There are techniques and tools for intercepting fraud before it occurs though. Various mathematical models can calculate when a company’s finances have been manipulated. The Beneish model is one such famous tool to expose fraud: it uses eight financial ratios weighted by financial coefficients to assess profits. Alternatively, you can deploy other methods such as simple ratio analysis and percentage models to evaluate company statements. 

Internal or external processes to detect fraud

One of the best ways to detect fraud is by implementing processes within your company that spot problems early. This requires structuring in anti-fraud measures. Ideally, you’ll set up your financial team to consistently monitor and audit company finances and search for fraud. From there, you’ll want a system in place that alerts management immediately when an issue is spotted for immediate action. On top of this process, it’s useful if the message is communicated throughout the company to deter potential fraud. Let everyone be aware that there are anti-fraud measures and that the business is searching for any issues.

While fraud is certainly a worry for any company, there are ways to mitigate the risk. You can use fraud detection tools and implement various processes to try and prevent fraud before it occurs. On top of this, you can seek advice from consulting and auditing professionals if you’re concerned about fraud.

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