Everything You Should Know About Accounting Fraud

Criminal activities date back to the emergence of human beings on the earth. Since then, on the one hand, human beings have tried hard to implement law and justice in societies. On the other hand, the criminals have focused on improving their tactics of committing the crime. No field of life is safe from crimes, as there are numerous ways and means of breaking the law and earning profit illegally. Accounting fraud is the most common criminal activity in the business world.

What is Accounting Fraud?

Manipulating the financial statement and misusing the financial assets of any organization fall into the category of accounting fraud. The owners of any business or non-business organization, their partners, employees etc., can be involved in accounting frauds. The basic purpose and mission behind accounting fraud are stealing the assets of organizations and using them illegally.

Keep scrolling down this article to explore everything you should know about accounting fraud.

Top 7 Types of Accounting Fraud You Should Be Aware Of

Accounting frauds cause a huge blow to organizations. They do not only negatively impact the financial position of the organization but also hurt its reputation and the interest of the investors. It can even lead the companies to bankruptcy in competitive societies like the United Arab Emirates. Therefore, staying aware of accounting frauds is critical to avoid them.

Here are the top types of accounting fraud you should be aware of in order to limit their occurrence.

1. Embezzlement

Embezzlement is the most common type of accounting fraud in business and even non-business organizations. When an assigned authority misuses the funds or assets, it is called embezzlement. Generally, the accountants have control over the budget and financial assets of an organization which they can embezzle. To avoid such a situation, organizations rely on bookkeeping and accounting firms in Dubai to ensure outsourced and trained accounting professionals manage their accounts.

2. Accounts Payable Fraud

Accounts payable fraud is another very common type of accounting fraud that can be committed easily. It is easier because the payable amount is retrieved from the organizational accounts through legitimate means. The fraud occurs when someone pockets that fund or payment instead of paying it to vendors or other parties. Accounts payable fraud or payrol fraud significantly hurts the reputation of the organization, which is often not aware of the fraud taking place.

3. Faking Supplier

Another type of accounting fraud is faking the supplier. The third party or even the employees of an organization create and introduce fake suppliers, proceed with all the dealing arrangements and bill the company for product or service. The fake suppliers or the creator of fake suppliers bag all the money without providing goods or services.

4. Personal Purchases

Personal purchases are another common type of accounting fraud that weakens the functioning and financial position of the organization. In this type, the accountant or any other employee having control over accounts uses the organization funds to purchase good or items of personal use, but enter it into the system as business expense, which is the major reason for the rising trust and popularity of outsourced accounting services.

5. Internal Theft

Another important type of accounting fraud is internal theft. It usually occurs in the inventory when the employees pick the goods, products or valuables of the organization without permission or notice. If your business inventory is shrinking unusually, you are definitely a victim of internal theft. Impose control and restrictions over employees having access to inventory to control it.

Read also : Auditors Reduce Fraud

6. Double-Check Fraud

Double-check fraud is another type of accounting fraud taking place in a business organization. In this type of fraud, an assigned authority fills a check for a vendor or supplier and fills another check of the same or different amount under the name or same supplier, only to slide it into their own pocket. On record, the payment is made to the supplier, but the employee uses it personally.

7. Accounts Receivable Fraud

Lastly, the most common and prevalent type of accounting fraud is in accounts receivable. It is quite similar to accounts payable as the assigned authority bags the payment from clients to his/her account instead of entering it into the organization's account. Any internal accountant can develop disloyalty anytime. Therefore, you should outsource the service to bookkeeping and accounting firms in Dubai to manage your assets, accounts and record transparently.

Read also : How forensic accountants helps in corporate fraud examination

Tips to Prevent Accounting Fraud!

Identifying the accounting frauds is tricky if you blindly trust your accountant and he/she is actually the one committing fraud. You can outsource the accounting service as it decreases the control of internal authorities over the accounts and limits such activities. Besides that, you can implement the following tips in your practice.

• Strict internal control on accounting functions.
• Distinctive account setup and approval functions.
• Random internal audits of accounts.
• Automated fraud detection system.
• Outsourcing accounts to reconcile the records.