The monthly close reconciliation process is a key check of the reported figures. If you can match off your transactions and reconcile the amounts then you can be more confident that your business is paying and receiving the right amount of money. However, since the reconciliation procedure is such an important financial check, it is the one area an internal fraudster may manipulate in order to cover up their crime. You can help to deter fraud with a more robust reconciliation procedure.
Manipulating the reconciliation process
Fraud committed by employees could involve them filtering out money to pay a non-existent or superfluous account, for example. The month-end close can be an effective method of discouraging this fraudulent behaviour by interrogating your Accounts Payable (AP) and Accounts Receivable (AR) accounts, and reconciling them with your other balance sheets. Discrepancies can then be investigated, and fraud detected.
However, if the person completing the reconciliations is the fraudster then they may manipulate the totals, or manipulate other balance accounts, so that the fraud is not detected. While this should not be possible due to internal compliance checks and processes that should segregate roles, findings from the Adra Match financial benchmark report, 25% of companies do not have a second approver and 41% still use Excel for their transaction matching.
Closing the door on fraud
It is the overreliance on Excel and the lack of a second approver that leave the door open to fraudsters manipulating the reconciliation process. To shut them out you must:
- Always ensure a second approver – someone different to the preparer should always check their work to help catch fraudulent or erroneous entries.
- Reconcile most accounts at least once a month – leaving key accounts unchecked for more than a month could lead to unexposed fraud, making it difficult to uncover the culprit later.
- Don’t rely on Excel – while a handy tool, Excel cannot ensure that roles are segregated. It uses formula for calculations, which are open to manipulation. In far too many cases preparers and approvers share spreadsheet passwords, making it difficult to clearly track who has made what changes. One preparer could alter another preparer’s reconciled account, and you won’t know it, and won’t be able to trace it. Or an approver could do the same, since senior financial staff might also be the culprits of fraud (source KPMG).
Shutting out fraud once and for all
With specialist reconciliation software, such as BALANCER from Adra Match, you can shut out fraud from your month-end close process. The software automates much of the monthly financial close process, making it practically impossible for fraudsters to manipulate the process.
BALANCER can also:
- Segregate roles by login ID – so that no member of staff is able to approve their own preparations. Staff roles are separated and every action is tracked.
- Automate workflow approvals – keeping your month-end close process timely
- Digital archive stores all the relevant data automatically – quickly and easily search for the relevant documentation in digital form
- Creates a strong audit trail – trace the steps taken to complete the month-end close and the people responsible for each step, helping to discourage fraud
Specialist software like BALANCER makes fraud in the month end close process a practical impossibility, since the opportunity for it within the system does not exist. As the opportunity does not exist, fraud won’t appear.
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