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Fraud-proof your financials 💪

January 9, 2023

This article originated from the Xero blog. The XU Hub is an independent news and media platform - for Xero users, by Xero users. Any content, imagery and associated links below are directly from Xero and not produced by the XU Hub.
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Fraud can take on many shapes - from making false insurance claims and cooking the books to pump and dump schemes and unauthorized purchases made as a result of identity theft. Often, businesses will appoint auditors to investigate their finances for any potential cases of fraud. However, if you run a smaller business, you may not have the capacity to bring in external auditors.

With our new Anti-Fraud tools, you can conduct your own audit to see if there's any fraudulent activity taking place in your organization. Read on to find out how.

All about Anti-Fraud 🧐

  • Outside hours;
  • Backdated transactions;
  • Future dated transactions;
  • Manual journals; and
  • Credit notes.

Let's break these down a bit.

Outside hours 🕰️

With outside hours, you can investigate transactions happening at suspicious times. Why was your accountant posting transactions at 2am on a Saturday? Is this fraud or is he just a night owl?

Backdated transactions 📆

In terms of backdated transactions, your analysis and reporting could be wrong as a result of transactions being posted late and it's possible that your accountant could be doing something a little shady. Either that, or she may simply not be on top of her work. Either way, this is worth investigating further.  

One example of fraud resulting from backdated transactions can be found in the 2000s when there was a series of backdating stock options. The backdating fraud mostly took place at tech firms that relied heavily on stock options for executive pay. This backdating scheme moved the effective date for exercising the options from when the options were "out of the money" to a date when the options were "in the money" to allow executives to exercise their options profitably. When this fraud was uncovered, companies who engaged in the backdating scheme were forced to pay fines and penalties and conduct extensive and expensive restatements of their books.

Future dated transactions 🗓️

Future dated transactions are similar to backdated transactions. They may make you question the way your accountant is working. Why would he be future dating transactions? That's not really best practice. Is he trying to hide something, invent something? Is he counting his chickens before they hatch?

Manual journals 📓

When it comes to Manual journals, any manual journal posted in Syft or in your underlying accounting software will show up in this section. Manual journals are the most risky accounting elements you have in a business as they often come with no supporting documents. Are these journals labelled as Entertainment or Gifts? Do they appear to be legitimate? Typically, it's useful to search for round numbers in manual journals as a round number in an everyday transaction is pretty unusual. Another thing that auditors typically search for in manual journals is transactions that are just below the approval threshold. Other areas to investigate include the following:

  • The use of unrelated, unusual, or seldom-used accounts;
  • Use by individuals who don't usually make journal entries;
  • Entries made at the end of the period or post-closing entries with little or no explanation or description;
  • Entries made before or during the preparation of the financial statements without account numbers;
  • Entries posted to accounts that contain transactions that are complex or unusual in nature and that have noticeable estimates and period-end adjustments; and
  • Adjustments for inter-company transfers.

Credit notes 📝

Lastly, credit notes are the result of discounts, returns, or corrected errors. While these things do happen, no business would like for them to be a frequent part of their operations. So, it's important to ask, why did this happen? Was it an error? Is there a problem with the stock being sold?

With Syft's new Anti-Fraud toolset, you can dive into all of these details with ease and ensure that your organization is safe from fraud. If you have Audit already, you'll see this as part of the Audit suite, and, if you don't have Audit, navigate to the burger menu or contact your Account Manager to sign up for Audit today.

Why leave it there?

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