Your bank statement reconciliation sits on the front-line in the defence against fraud. If it is done right it will save you time, money and embarrassment. If done wrong, it could cost your business…
First of all let’s understand what is meant by fraud…
“10% of people will never steal, 10% will always steal, 80% of the people steal given the right motivation and opportunity’ (source: ACFE).
Hence, the best way to tackle fraud is minimise any opportunity for the 80% in the middle. If you make an effort to go after the 10% that will always steal, even if they don’t work in your company (yet) you will minimise the opportunity and incentive for everyone else.
Who commits fraud against the finance department?
Usually male (but not always) aged 36-45, in a senior position, perhaps also in management or an executive, with over 10 years’ experience,j at the company. As such, they will know your systems, the controls and their weaknesses (source KPMG).
However, in reality it could be anyone!
They may work alone, but are more likely to work in collusion with other employees or a supplier or distributor; this makes fraud much easier to pull off as one can simply approve the other’s work.
How to stop it?
An important line of defence is your bank statement reconciliation. The bank reconciliation will match company records against actual payments and withdrawals – going back to the raw source of your finance. This raw information is very difficult to manipulate and get away with, especially with hard controls like segregation of duties in place since more than one person would need to be involved, increasing the risk for the fraudster.
There are several of these ‘hard controls’ that finance departments should put in place in order to minimise the opportunity for fraud. These are system and process rules that should always be followed as a matter of protocol, and include:
- Segregation of duties – The preparer and approver should be two different members of your finance team. This way any inaccurate calculations can be caught by the approver and corrected, making it much harder for fraud to be carried out.
- System & business process controls – It is important that staff use and understand the importance of logins and passwords. Often logins are shared amongst the team, making tracking changes to a specific member of staff very difficult.
- Authorisation rules – Follow a strict sign-off process with specified point people in charge of the sign-off process. This way there is always someone to take responsibility for incorrect figures.
- Regular internal audit – A regular internal audit helps spot the weaknesses within your internal procedure, including any opportunities for fraudsters. Armed with this knowledge you can begin to shut down these opportunities, minimising the risk of fraud.
Stem your losses
Bank statement reconciliation also helps stop fraud before it causes mammoth losses. For example, the median loss value when fraud is caught via reconciliation is only $124,000, whereas by the time an external auditor catches it the median loss is over double that amount, standing at $370,000. If you wait until the police turn up at your door then you are looking at a loss closer to $1 million.
How to be confident in your reconciliation controls
You may think you have all the right barriers in place to prevent fraud, but if those controls are easily bypassed then they are next to worthless. This is so often the case when using a tool for your reconciliation that is not secure, such as Excel, which over 60% of finance departments still use.
Specialist transaction matching software, such as Adra Match ACCOUNTS, however, establishes a clear and rigid reconciliation procedure, automating the bulk of your bank statement reconciliation. This automation dramatically cuts down the opportunity for fraud, while tying specific staff ID to each stage of the procedure, making segregation of duties and auditing far quicker and easier.
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