Fraud And The Role Of Accountants To Address It

Steal illegal webAs idealists we wish to live in a utopian corporate world that is free from vices like accounting frauds and ‘white collar’ crimes. However, ever so often, we come across cases of fraud in the corporate world, across all geographies. On its surface, it might appear that entities from developed countries are faring better than emerging economies and the under-developed world in matters of preventing corporate accounting fraud. However, the reality might be shrouded by the sophistication in how frauds are committed in the modern times; cybercrimes and computer fraud proliferate which threaten our economic well-being, our private lives, and the system that protects us from abuse and harm.

By the very nature of their occupation, accountants invariably would come across such frauds in some form or the other as they discharge the duties of their office. Faced with such glaring occurrences, what should an accountant do to address such corporate frauds? The below mentioned points may be used as a guide for accountants who wish to understand their roles and responsibilities when they encounter fraud:

Subject matter expertise: Before concluding that there is something out of place in your organization’s accounts, one must understand and analyze company financials fully. For instance, the starting point may be to tally the three financial statements, namely, profit & loss statement, cash flows and the balance sheet. Most fraud signals can be detected at this level of analysis itself, as when an item or items susceptible of misappropriation sticks out as “un-ordinary”. Check, re-check and dive deeper into payment vouchers, all the way down to the source documents to ascertain that, indeed, fraud has been committed.

Articulate your concerns to superiors: It is an accountant’s duty to immediately alert superiors as soon as probably cause for the commission of fraud is established. The articulation must be data driven, not qualitative or subjective. The more quantitative the articulation, the more it is probably that your superior or persons in authority will be able to support your case. Providing hard evidence to back up your claim makes it easier for your superiors to understand your findings.

Escalation to higher management: If the discussion with superiors does not lead to any action on ground, it’s the accountant’s duty to escalate their findings and recommendations to higher management. Perhaps the management is unaware of happenings in the lower rungs of the company. It is important to communicate to them what the nature of the fraud is. Here, the communication form should be different from how you have previously communicated it to your superiors. Communicate the detail in a concise, non-technical manner complete with documentary proof and your findings; in this way, management is quickly able to grasp the crux of the matter.

It is each company’s duty to provide a workplace that adheres to pronounced ethical practices. Despite this, when an accountant witnesses or discovers anomalous and highly irregular transactions, he should be ready to face the risks involved in analyzing and reporting frauds in the workplace. While it is true that his job may be at stake, still, one must consider whether working on the wrong side of the law is going to remain unnoticed in the long run. Overlooking a crime is, sometimes, equivalent to participating in the same. Therefore, as an accounting professional, if you happen to observe an anomaly, understand the details, gather the relevant data, and report it at the opportune time.

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