Fraud Detection and Prevention Using Accounting Information Systems

Accounting Fraud Detection and Prevention
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Fraud Detection and Prevention Using Accounting Information Systems
Accounting fraud is a common problem in business. It involves the illegal tempering of financial documents to manipulate a company's financial performance. The practice negatively affects businesses because organizations rely on accurate financial reporting to develop plans and strategies that will enable them to survive in the market. Technology has proven to be an asset in preventing as well as mitigating accounting fraud. Accounting information systems (AISs) have become more effective than human beings at combating fraud due to their enhanced performance, accuracy at keeping records, and ability to enforce access controls, among other features. Since accounting fraud can occur in several areas, business entities must utilize AISs to combat the problem.
An area that accounting fraud can occur is invoicing. An employee can manipulate accounting records to generate fake invoices to the company or make payments to bank accounts that they can later use to retrieve the money (Singh & Best, 2015). It is caused by a lack of proper controls in the purchasing process, which causes employees to take advantage of the system. The effect of invoicing fraud on the organization is to reduce profits. The fake invoices increase the cost of raw materials and other expenses, raising the cost of goods manufactured and reducing a company's income. Therefore, invoicing fraud can occur in an organization, and it reduces profits by increasing the cost of supplies.
Expense reimbursement is another area that accounting fraud can occur. It involves employees making inflated or fictitious claims for reimbursement (Wells, 2017). A fictitious claim occurs when there are no related expenses that have been recorded. In contrast, an inflated claim occurs when the expense occurred, but the employee files an overstated claim. Expense reimbursement fraud occurs because of a lack of controls in the process, such as proper verification mechanisms. Its financial impact on the organization is to reduce the profits due to increased expenses reflected in the operating costs. Thus, expense reimbursement fraud thrives due weak internal controls and has a negative impact on an organization's income.
Another area that accounting fraud can occur is the accounts receivable. Lapping and skimming are common types of fraud in accounts receivable. Lapping involves an employee stealing cash from a recorded sale and using funds from other sales to cover the fraud. Skimming involves stealing money from a sale and charging the company an expense in order to cover the cost. The lack of proper separation of duties accompanied by weak internal controls are some of the main causes of fraud in the accounts receivable (Andrayanti, 2019). The impact the organization negatively by reducing its profit because the company's revenue is reduced, which affects the company's ability to continue operations. Accounting fraud in the accounts receivable is caused by a lack of separation of duties, which affects a company's profits.
Finally, sales are another area that accounting fraud can occur. In this case, employees int...