The Impact of Fraud and How Forensic Accounting Can Help Combat It

One of the biggest threats to a businesses and the markets is fraud. All businesses of all sizes are at risk of fraud. The two main types of fraud are misappropriation of assets by employees and fraudulent financial reporting. The latter point being a process whereby the figures are purposely adjusted in order to mislead investors, stakeholders and the public. Typically misappropriation of asset fraud is conducted by employees whereas fraudulent financial reporting fraud is often conducted by those higher up in a company such as senior management or the directors themselves. Both types of fraud can devastate a company and affect the economy on a local, national and international stage.

Financial Losses

The first major effect of fraud is perhaps the most obvious; financial loss. In its most basic form a misappropriation of company assets can be as simple as an employer taking 20 pounds from the till. This type of fraud has embezzled the company of 20 pounds. When we begin to look at fraudulent financial reporting the results are much harder to decipher. The risk of fraudulent financial reporting doesn’t have an exact monetary value. It’s risks become apparent when we take a look at the financial impact of investigation fines, the costs of civil suits to recoup investor and creditor losses as well as the long term impact of banks and companies refusing to extend a line of credit or a loan to you and your business in the future. In the long run these financial restrictions can end many businesses.

Reputation

Someone who steals and lies isn’t to be trusted. This also applies to businesses who steal and lie in order to gain a financial advantage over their competition. Many cases of fraud when investigated by the police will reach the media. Be that the national or international news for major corporations or local news outlets for smaller, local businesses. Either way in the impact is felt the same. Existing customers will lose trust and potential new customers will stay well away. The reality is that businesses lose the trust of their customers when they get involved in fraudulent acts. The impact and drain of an investigation on a taxpayers money is often the stick that the public will use to bash a fraudulent company damaging your reputation well into the future.

Employee Moral

Employees who know their employers are corrupt and fraudulent will often feel a full range of emotions that negatively affects their work production. Some may feel embarrassed to work with a company that acts in this manner Some will begin to distrust their employers, if an employer can lie on their tax returns that why wouldn’t they lie about how much overtime you are owed? Some employees will begin to feel apathetic towards their employers. All of these emotions always lead to the same result; an unhappy and unproductive workforce which in turn will turnover lower profits.

Increased Audit Costs

Come the hour of the dreaded audit most auditors will raise their prices and their attention to a businesses that has a history of fraudulent activity. This inevitably leads to higher fees and tighter restrictions all of which will affect the financial movement of a business.

If you are worried about fraud in your company or you suspect foul play then why not hire a forensic accountant. A forensic account will apply the application of accounting techniques to legal disputes.

Anyone can hire a forensic accountant if they have a financial dispute or if they want to know the potential downside or upside to a financial decision. Forensic accountants are often hired by individuals, companies and lawyers.