How Accountants Help Detect and Prevent Fraud and Scams
Evolving technology is a boon for bookkeepers and accountants – as well as for fraudsters and scammers. If your business accounting methods are getting easier and faster with fewer errors, scams are getting smarter too, with AI-generated deepfakes, convincing fake invoices, and hacking tools posing serious risks to your business data and financial resources.
As with your health, prevention is better than cure when it comes to scams and frauds. Stringent internal controls, and their consistent application and monitoring in daily operations, are key to preventing wrongdoing in your business. However, even the best controls sometimes fail to stop a shrewd fraudster. In those cases, you need a keen-eyed accountant to detect anomalies in your financial data early and protect your business from irreversible financial and reputational damage.
Scam and Fraud: Are They Different?
While most people use the two terms interchangeably, there is actually a distinction between them. A scam is a form of deception in which the scammer convinces you – through sweet talk, fear, or temptation – to hand over your data or money to them yourself. In this case, you authorize the payment or make it without giving access or passwords to the scammer. This makes scams difficult to detect but easy to prevent.
Fraud involves unauthorized theft of data or money, with the fraudster surreptitiously gaining access to your account and systems. In a business environment, such fraud is often committed by internal employees with access to data. Without strict controls and audits, such fraudsters siphon off small amounts of money over a long period to avoid detection. By the time the deception comes to light, the company has already lost a considerable amount of funds that could have been used for growth purposes.
How Scammers Catch You Off Guard
Scammers prey on your fear and vulnerability to force you into making expensive mistakes. Most scammers have certain common traits they use to deceive you into making payments or sharing data:
- Urgent Requests: Scammers use urgency to fool you into making rushed decisions. They pose as executives, suppliers, or government agents contacting you about a fake CRA audit or attractive government grant. They drive you into a state of nervous panic with their insistent tone, urging you to take their recommended action immediately to avoid penalties or lose out on a lucrative opportunity. This pressure to “act now” is a glaring sign that you are dealing with a scammer.
- Unusual Payment Method: Legitimate government agencies, the CRA, or any genuine business will never ask you to pay with gift cards or cryptocurrency, or ask for a personal e-transfer address. Such requests, even from known vendors, should be flagged as suspicious and reported to the concerned senior official or accountant.
- Request for Sensitive Information: Scammers often use technology and AI to impersonate CRA officials, financial institutions, and even payroll companies. They communicate via genuine-looking emails or messages, requesting sensitive information such as your tax IDs, SINs, login credentials, etc. However, real agencies and institutions use secure portals or encrypted document-upload systems to share sensitive information. Requests for any other methods are a potential scam threat and should be treated with caution.
Tips To Prevent Scams
Verify the Source:
Never reply to a suspicious message without first verifying its source. To verify, contact the sender using known channels. For instance, look up the company online with the term “scam” or “complaint” to see whether anyone else has had a similar experience. Next, find a verified or registered phone number or email address (you can find this on their official website or another trusted source) and call/email them to confirm that the message is from them. Contacting the company through a known source is not only safe, but also alerts the company of how their name is being misused to scam people, helping them take corrective measures to stop it.
Use Advanced Security Controls:
Passwords are not enough to keep your information and money secure. Set up reliable antivirus software and two-factor authentication (2FA) for online banking, accounting platforms, and cloud storage. For these security measures to work, keep updating your accounting software, operating system, and antivirus software, as updates help close minor or critical security gaps.
And yes, never use public Wi-Fi for financial tasks.
Consult the Accountant
If you suspect a scam, the best person to call in for immediate assistance is a professional accountant. They are up to date with official announcements by the government and the CRA. Their audit experience gives them a keen eye for identifying fake websites and calls. They know the procedures and the official channels, helping you identify and report a scam. If your business has already fallen victim to a scam, the accountant can develop strategies to mitigate the damage.
How Accountants Help Detect and Prevent Fraud
Financial fraud, especially fraud that goes on for a long time before being caught, can handicap a business’s financial stability, growth prospects, and goodwill. Most fraud is committed by the very people you trust to manage your business. In a small business with a limited team, such frauds often go unnoticed. The good news is they can be prevented or detected before it’s too late by following some simple tips:
Conduct Forensic Accounting and Fraud Audits:
Professional accountants can use forensic accounting to sniff out duplicate or fraudulent transactions and inconsistencies in financial reports. Sudden revenue spikes, excessive refunds or chargebacks, and unapproved vendor payments are signs of potential fraud within the business. Regular reviews, reconciliations, and surprise audits can help uncover such fraud, and the accountant can also guide you on the correct legal action in these cases. Periodic risk assessments can also help accountants identify vulnerable areas or gaps, which can then be addressed proactively to prevent fraud.
Set Up Internal Financial Controls:
Segregation of duties for financial transactions is an effective way to prevent fraud. By developing strong internal controls such as dual approval for large payments, limited access to financial systems and accounts, separation of payment execution from reconciliation or reporting, and expense monitoring, the accountant can make it difficult for fraudsters to commit fraud; if they do attempt it, it will be detected immediately.
Enhance Cybersecurity and Data Protection
A professional accountant knows the latest security and encryption systems available for businesses. They can, thus, recommend antivirus software, accounting systems, and data storage systems that best suit your business requirements, while also helping you set up added layers of protection such as 2FA and access control to protect your data and money from hacking, phishing, and digital fraud.
How Accounts Can Help Businesses Recover from Fraud
Despite your best efforts, businesses can still fall prey to a scam or fraud. In those moments, a competent accountant can not only help you detect it but also recover from it. After determining the extent of the damage, the accountant can help you file legal claims, manage insurance, develop strategies and budgets to overcome financial losses, and implement stronger security and internal controls to prevent another incident.
Contact KSSP Partners LLP in Markham to Help You Strengthen Internal Controls
If you suspect fraud, talk to a professional accountant to help you audit your internal controls and financial transactions, and fix any leaks before they snowball into something that harms business profits and goodwill. At KSSP Partners LLP, our accountants and bookkeepers can provide services such as conducting internal audits and setting up internal controls. To learn more about how KSSP Partners LLP can provide you with the best accounting and bookkeeping services, contact us online or by telephone at 289-554-5997.
