Fraud in Accounting

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Fraud in accounting has come full circle since Sarbanes Oxley in 2002.  It goes by several different names but affects companies in almost all the same ways.

Asset misappropriation

There are several basic types of fraud. however, asset misappropriation and financial statement fraud are some of the most common among growing businesses. When you hear about asset misappropriation think check forgery, theft of money, inventory theft, or payroll fraud. Recent statistics show that asset misappropriation happens in over 91% of fraud schemes.

Financial fraud

Financial fraud, although it occurs least frequently, in only 10% of all fraud cases, it is easily the most expensive. This type of fraud centers on the manipulation of financial statements. Think manipulation of stock price, increased year-end bonuses, favorable loan terms, or other indirect benefits from the financial statement fraud. Every business owner firmly believes that fraud have and will never happen to them. After all, all checks that are written are only distributed by the owner, payroll is distributed by the owner, and employees hired have had background checks and are just so trusting. Unfortunately, it happens more often than we think.

Financial fraud example

Take for example my Professor – a tax lawyer, CPA, and small business owner. In his third year running his company, an employee who had been working for the firm for two years had been stealing small amounts of money for a year and a half. You ask yourself how could a tax lawyer, CPA, and professor let this happen? The answer is simple; he didn’t think it could happen to him either. Turns out the employee had been taking small amounts of $100 each week for 18 months out of the petty cash fund, in which he was solely responsible for; the amount totaling just over $7,000. The “it won’t happen to me mentality” could have been avoided if he only understood that fraud is a real thing that occurs in every sized business from the Lehman Brothers to start-ups.