For fast growing businesses, capital often takes over, compromising the quality of in-house finance to fi budgetary restraints. Small to mid-sized businesses can only afford to hire one person, so they aim for the middle. They hire someone who can collect and deposit checks, invoice customers and reconcile the bank account but can also manage and prepare the financial statements. However, the risk of fraud increases when these duties are not separated. High growth businesses are the most common victims of finance and accounting frauds.
While executives are busy with achieving their business goals, they ignore oversight of the internal accounting control, thus falling victim to fraud. That’s why outsourcing comes as the best solution for the separation of finance and accounting duties.
Separating Duties
Instead of leaving everything to one employee, separate the accounting duties to two or more experts. The three primary accounting functions are record keeping, authorization, and custody of assets. One or two of these functions can be left to an outsourced expert, as dividing the work between two employees is the minimum level of accounting duties separation.
CEO Opportunity Cost
CEOs don’t want to be bothered with time consuming and tedious daily accounting tasks. But when fraud happens, they’d wish to have been there to check the numbers from time to time. CEOs are more focused on other business’ core competencies and gave up the potential benefit that they could have received from finance audit. It is called opportunity cost, which is why CEOs outsource their accounting processes to outside experts who perform the review instead as well as offer critical financial advice on how to avoid common accounting mistakes.
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Check Tampering Fraud
Tampering fraud is when an employee alters, forges, or intercepts a check drawn on your business’ bank account. The four types of check tampering are:
- altered checks (changing the payee),
- concealed checks (the signer failed sign a check that was hidden in a batch),
- forged checks (forging the check signature),
- authorized maker (misappropriation of funds by the signer).
To separate accounting duties, such as bank reconciliation and data entry, you can outsource for an additional accounting person or service who will perform all the necessary audits to check for fraud.
Billing Fraud
When an employee submits invoices for fake goods and services or personal invoices for the company for payment, it’s called billing fraud. It’s one of the most common types of fraud which happens when the accounting duties, such as bill payment and bill reconciliation, aren’t separated.
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Payroll Fraud
Payroll frauds happen when an employee issues payment to fictitious workers or inflates their working hours on their timesheet. It’s less likely to occur in larger organizations because they outsource payroll because of the complexity of the function. Luckily, there are automated billing systems and fraud detection tools (offered by banks) to which you can safely outsource payroll.
Skimming Fraud
The term “skimming” means taking something off the top. The cash is skimmed by the employee responsible for the cash receipts, and it’s a typical scenario in organizations that continue to receive cash payments. The fraudster takes the money and deletes the entire transaction or reports a lower cash total. By hiring someone to run an audit trail, they can detect that something was deleted in your business’ cash account.
One of the most significant fraud problems is corruption, regardless of the size of a business. Companies can avoid making it easy for people to commit fraud by setting up a system of internal accounting controls. The accounting staff you outsource to will address the causes of fraud, such as under-optimization in the accounting software, understaffed or overwhelmed employees, and messy books. They will give you unbiased oversight and focus on finding any mismatches. Also, it allows for the separation of crucial accounting duties which will provide you with peace of mind.
