How To Look For Fraud

[Barquentine]

Where might the best places be to look to find evidence of fraud by accounts staff in a small company? The owner is a bit naieve and very trusting of the woman who heads his accounts department. I am good friends with the owner & am doing some work in the office at weekends. I have access to the accounts room where all the invoices and bank statements are kept but don't have a clue about accounts. The company has a good turnover but never seems to make any profit. Are there some quick and obvious places to have a look to find prima facie evidence?

[Brinjal]

You could start by looking at accounts paid and making sure that payments have been receipted or appear on the bank statement. Check expenditure. Who writes out the cheques. Make sure that payments are going to the suppliers and not into some arb bank account. There are lots of checks you can do. What sort of company is it? Do you have reason to believ that something fraudulent is going on.

[VHG]

Unless you have been given permission to do this be VERY careful snooping around in financial paperwork or you may be accused of looking to do some criminal activities yourself !

[Barquentine]

Many thanks. It is chaos in there. Paperwork spilling out all over the place. I'd have thought his accountant would spot something when he audits the books. There's just one 'Nominals paid' ring-binder but nothing going back further than September this year. What she's done with older bills I don't know.
And thanks VHG - yeah, there's plenty I could do if I was so minded - there are cheque books and petty cash lying around all over the place. I'm more interested in catching her out than doing anything myself. Rather than my looking (I won't find anything I know) how can I persuade the owner to get his accounts checked out when his attitude is 'we can't lose her, she's the only one who knows what's going on with the accounts'!!!

[atalanta]

Do a search for "benford's law" and apply the information to the figures in the accounts. Benford's law inevitably will show up any places where there are frauds in accounts.

[themas]

If the accountant has to do a formal audit he/she has legal responsibilities, which should include satisfying him/herself that the accounts are an accurate reflection of the state of the business.

If sucha formal audit is not required then an independent investigation should be undertaken. However, how you persuade the owner of this I don't know!

Of course, it may all be above board & she just likes working in utter chaos, but if there is cash & cheques just left lying around it would be indicative to me that her accounts work is unlikely to be able to be all that accurate. You just can't do that sort of work thoroughly if you don't have some reasonable organisation.

If the business doesn't make a profit then either the selling price is too low or the costs are too high - or both. Unless of course your suppostion is right & there is something underhand going on. Perhaps you could use the lack of profit to try to persuade the owner that a proper investigation is needed.

[Peter Pedant]

cash flow account is the only one you cant falsify