Unfortunately the professional advice accountants provide rarely includes a forensic package of some kind for clients, with tell-tale signs to alert them that fraudulent activity may be going on in their business.
Yet the majority of company fraud cases we have investigated could have been detected well in advance if there had been a checklist in place that would have exposed some form of wrongdoing. I put this down to a blind faith and trust that business people – including accountants – have in their employees, even though the people you least suspect are most often the perpetrators.
Watching out for fraud is probably left to the auditor. The problem is that not all companies are audited. Let’s look at what accountants should be advising business owners to practise and the measures to put in place.
Safeguard financial information
Start with computer systems. I am amazed when I discover that the most sensitive financial information of a business can readily be accessed by anyone in the company. Why? Why would business owners be this slack? Obviously they ignore the advice of their accountant, because I believe accountants do tell clients to restrict access to financial information to a select few, and to implement controls such as dual signatories on cheques.
Yet even then there is no guarantee. Remember the Clive Peeters case a couple of years ago when the bookkeeper embezzled over $20 million and bought a portfolio of 43 properties over an 18-month spending spree?
It is simply astonishing how she was able to destroy a company right under the noses of management. Where were the checks and balances and why did it take so long to discover all was not well with the big retailer? When cash flow dried up it was too late and within a year the company filed for bankruptcy. Here was the classic example of a bookkeeper who apparently was the only person who could provide management with crucial financial data – except in this case, it was ‘cooked’.
Know your software
Clive Peeters was not a small outfit. It was big. But think how many SMEs rely on bookkeepers to provide them with critical financial information via off-the-shelf accounting software systems business owners don’t know how to work.
The lesson to be learned here is that accountants should insist business owners take time to learn and understand the software their bookkeeper or family member is using to manage their financial affairs.
Remember these systems track not just the financial data, but also inventories and orders. If the business owner knows nothing about a business system the only chance of picking up on stock shortfalls is a physical inspection. But a deceitful bookkeeper can assure the owner that all is well as orders are in the pipeline.
