Fraud and Forensic Accounting

Accounting fraud is serious issues for all businesses, but they are especially challenging for small companies that are "cash strapped". Fraud undermine decision making, lead to financial losses and, in some cases, even force companies to lay off staff or shut their doors. Fraud is a common problem for small businesses. According to the Association of Certified Fraud Examiners (ACFE), 30 percent of all fraud occurs in small companies. That is a disturbing fact considering that the estimated fraud loses for business of all sizes was nearly $2.9 trillion in 2009.

Fraud occurs so frequently in small business for a couple of reasons. A common reason is that small companies typically have small or even single-person accounting staffs and limited internal controls; lack of separation of duty. It is typical to have the accountant also be the office manager and receiving clerk. Problems can arise if for no other reason than on one double checks the work. Besides being more susceptible to errors and fraud, small businesses also are less likely to discover them because financial audits are almost never performed.

It seems, as though a new scam comes to light every day, with electronic-media inspired frauds such as phishing and spoofing, joining old, low-tech fraud themes. The Association of Certified Fraud Examiners (ACFE) periodically publishes Report to the Nation on Occupational Fraud and Abuse. The article attempts to define emerging fraud techniques as well as identify the economic impact these crimes have on our economy.

Frauds perpetrated against small businesses continue to cost more on average than those against larger firms. The ACFE states that the average cost of a fraud event targeting businesses with fewer than 100 employees ranged from $160,000 to $200,000 for the period of January 2008 through December 2009. That can mean quite a chunk of your profits will be lost to fraud. The report also states the most common frauds in small businesses are of the occupational variety, including check tampering, revenue skimming and fraudulent invoicing. Although, occupational frauds in all (small as well as large) businesses are the most abundant, financial reporting fraud and medical insurance fraud are the most expensive. l

There are several types of check tampering schemes; they include:

* Forged maker schemes, which involve forging an authorized signature on a company check

* Forged endorsement schemes, which consist of forging the signature endorsement of an intended recipient of a company check

* Altered payee schemes, which involve changing the payee designation on the check to the perpetrator or an accomplice

* Authorized maker schemes, which occur when employees with signature authority write fraudulent checks for their own benefit

Employees use all different types of methods to skim money from their company. Employees