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Three areas that'll help you identify crippling FSF in your business

by , 24 July 2013
Financial Statement Fraud (FSF) can cripple your business. That's why it's important that when you look for fraud, you don't just look at the numbers, but look at the bigger picture of your business. Here are three areas in your business that are vulnerable to fraud.

According to the Practical Accountancy Loose Leaf , FSF is committed when assets, revenues and profits are deliberately overstated or liabilities, expenses and losses are deliberately understated in financial statements.

This is detrimental in the long run because the person who makes these fraudulent recordings can face criminal charges. This will bring your company to its knees.

You can stop FSF in its track starts by looking at the following areas in your business:

#1: Management and the Board of Directors:

When looking at this area, the background of your directors is something you should consider. Be curious as to what motivates them and what their scope of influence is.

This is important because, where there's a strong management influence there's a greater chance of fraud being committed.

#2: Company's relationships with other entities

Consider the relationship your board members have with financial institutions, related parties, auditors, lawyers, investors and regulatory bodies. Then consider if this relationship is transparent.

The last thing you want is unlawful collusion being committed under your nose.

3. The organisation and its industry

In this area, consider factors like the structure of your company. Ask these two questions: What are the unique characteristics about your company? How do these characteristics compare to your industry peers?

'When you do an analysis, it's good to compare how you're doing vs. the market. If you're on par or slightly higher or lower than the industry standard, you know you're in close proximity to the norm

If there's a significant difference between your peers and you, find out the reasons why that is, advises the Practical Accountancy Loose Leaf .

Looking at these areas will help you stop FSF from being committed in your business.

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