Did you know that the average company loses 5% of its revenue to fraud every year? Small businesses suffer even greater losses. Are you aware that fraud prevention tactics of the past are losing efficacy as cybercriminals exploit technological advances? Revolutionary forensic accounting services – able to study the future and prevent fraud before it happens – are becoming an invaluable resource. The following content explores the intricacies of business fraud and forensic accounting, as well as the ways both have developed. Ultimately, the goal is to present the necessity of forensic accounting services in the fraudulent world we live in.
The Problem of Business Fraud
Businesses are fully aware of the dangers of fraud, as well as its unmistakable prevalence in nearly every industry. Do not assume that your company is exempt. Fraud is so rampant that if it has not impacted your business yet, it likely will without preventative measures. Businesses are also noticing a rise in fraudulent activity. In fact, when businesses were asked if they have detected more or less fraud in the past year, nearly 40% said more.
While most businesses are fully, painfully aware of the pervasiveness of fraud, many are unsure how to combat it, feeling vulnerable and unable to protect their company or patrons. On one hand, as businesses have attempted to combat fraud, fraud itself begins differentiating to a variety of new methods, from check fraud to corporate card fraud to the next technological advancement.
On the other hand, many companies prioritize customer satisfaction over security, simply accepting loss for the sake of happy customers. A 2018 global fraud report states: “Businesses are forever grappling with the tension between managing fraud and maintaining a positive customer experience. In most cases, the latter wins out, as evidenced by their willingness to accept higher fraud losses from authentication protocols that they concede might be deficient, but do not disrupt the user experience.”
The Fight Against Business Fraud
In the midst of this battle between customer satisfaction and security, most businesses have utilized security measures that have been used for years, such as security questions, usernames, PIN codes, and passwords. Simultaneously, however, companies are learning that these methods of security are not always the best options. According to the same fraud report referenced earlier, nearly a quarter of consumers forget either a password or username within half a year. Ultimately, forgetfulness makes passwords and usernames a source of frustration to the average consumer.
Leading the way into new, more secure authentication methods requires a shift from the status quo, a huge, uncomfortable step for most businesses, unless many industries dive in at once. Yet, nearly 75% of businesses claimed that they “would be very interested in more advanced security measures and authentication.” The need is great. The desire is there. Yet, proactive steps to prevent fraud are widely ignored.
The Basics of Forensic Accounting
Not something to be ignored, however, fraud must by uncovered and prevented with a trustworthy, cutting-edge forensic accounting service.
What is forensic accounting and how can it solve the problem of fraud? Investopedia defines forensic accounting as a practice that “utilizes accounting, auditing and investigative skills to conduct an examination into the finances of an individual business. Forensic accounting provides an accounting analysis suitable to be used in legal proceedings.” Forensic accountants are carefully trained to preemptively notice fraud, often preparing a case that serves as evidence in a court of law. Forensic accountants must be able to investigate a company’s financial statements and transactions, comprehend the information, and – ultimately –check for suspicious activity.
Forensic Accounting: A Brief History
Interestingly, forensic accountants are not only responsible for fraud prevention; this is a more recent role development. “Like any other job,” honors student Kristin Dreyer wrote, “Forensic Accounting has evolved with time. The industry has been affected by changes in technology, society, and the economy. As one aspect of the world changes so has the job of a Forensic Accountant. Continuing education is only one way in which Forensic Accountants learn how to adjust to new challenges. The profession has been around since the early 1900’s and has greatly altered the way fraud is discovered and handled since then.”
For years, forensic accountants have been utilized after natural disasters, divorce cases, or famous criminal proceedings. The capture of Al Capone is an example of a famous case featuring forensic accountants. The accountants noticed a large amount of illegal income, such as gambling, that was not claimed on his taxes. Tax evasion, oddly enough, was the crime that ended Al Capone’s reign. The heroes: forensic accountants.
The Future of Forensic Accounting
Recently, as the prevalence of fraud has increased and changed with the times, forensic accounting services have been prompted to revolutionize and think proactively.
In the world of forensic accounting today, certain accounting firms have looked to the future, determined to stop fraud before it happens. This is the kind of forensic accounting service you should pursue for your businesses. Pay close attention to offered services, those that will eventually merge to create a proactive fraud strategy. These include assessment of vulnerabilities, mitigation of potential risk of loss, litigation support to re-coop losses, and determination of fraud risk tolerance.
Fight Fraud with Forensic Accounting Services
Furthermore, in an ever-changing world, traditional fraud prevention techniques are losing. Passive, reactive accountant services simply will not cut it anymore. Cybercriminals are pervasive, utilizing technology to always be one step ahead. As a result, inhibiting fraudulent activity requires forward-thinking, proactive prevention.
Klein Hall is a full-service accounting and business advisory firm of the future. We know the frightening prevalence of fraud, and we know that internal control weakness is the reason for nearly half of all cases. This is why we look for systematic vulnerabilities throughout your business. Our fraud prevention services are designed to stop financial crime before it happens.
Fraudulent activity can happen to the very best of businesses. Don’t wait until it strikes. Contact us today to begin a discussion about a future free of fraudulent activity for your business.