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Account Receivables Frauds – A Serious and Common Problem

Growing businesses always remain in the targets of patiently waiting fraudsters. Just one opportunity and they pounce on it like a starving tiger. And the worst part, it is usually too late by the time the frauds are detected. The damage has already been done.

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And one of such frauds is the account receivables fraud. Account receivables commonly become the prey because of its busy nature. So many transactions are recorded in it every day.

Let’s discuss some of the common techniques of receivables frauds, detection methods and overall prevention of such frauds.

Common Techniques –

Account receivables frauds happen when an employee or accountant moves the payments from your clients to their own pockets. You make a sale and keep on waiting for the payment because your income is already in someone else’s accounts.

It can be conducted via many ways –

Lapping – This is the most common way this fraud is conducted. Here, the fraudster covers or laps the credits of the receivables. Instead of crediting the client’s account for the payment, the funds are shifted to a personal account and a payment from some other client is issued to first client’s account.

Discounts and Write-Offs – Here, the fraudster may pocket the funds and record a debt write-off on the client’s account to reduce it. This reflects the current balance as expected despite the diversion of the payments.

They may also show sales to phony accounts which artificially inflates the financial results.

How to Detect Such Frauds?

While detecting such frauds is difficult, they are not impossible. Even a personal CA of the company can commit such frauds. You may have heard about the Ronald Rutman fraud case where he committed all the frauds under the radar without any suspicion. The first warning comes from suspecting clients. If they find anything suspicious in the ledgers then you should consider calling in a forensic accounting expert. They can trace back to all the sales or payments and give final reports with complete verifications.

Another grey area is the bad debt write-offs. If any specific and concrete reason for such write-off does not come back from the employees then it may be worth to hire a forensic accountant. If anything seems out of ordinary then you should get alert.

The main thing to note here is that everything should be done discreetly. This increases the chances of better detections.

Prevention Tips

The first step to prevention of such frauds is to eliminate opportunities for stealing by segregating the duties. If you have the resources and the time to implement it, having separate entry points for every process helps in better record keeping and management.

Also, perform regular vigilante audits that help to keep the employees in check. Reconcile your statements along with your ledgers. And always focus on consumer complaints as they are the first red flag for any kind of misconduct in the business.


About Rohit Shetty

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