Why Your Accounting Department Is Hurting You

When considering your accounting department, one of the more “sensitive” topics to touch is fraud. Business fraud, especially in small businesses, can take away nearly 5% of total revenue. That means precious resources and time could slowly be chipped away.

And unfortunately, the accounting department has seen a surge.

According to Cornerstone Research, “accounting cases”, as they’re referred, has increased by 47% since 2013. These include auditing violations and discrepancies in financial reporting. Essentially, people that were in violation do not follow the Generally Accepted Accounting Principles or GAAP for short. These cases are handled by the Securities Exchange Commission, known as the SEC. They take every case seriously and follow strict guidelines to take appropriate action.

Here are some of the more common violations seen in these past 3 years:

Accounting Duties

One of the violations that come out of accounting departments is a failure to effectively communicate their reporting and financial statements.

Prof. Charles Lee from Stanford has expressed before that accountant “keep economic history”, in the sense that their records prove invaluable to business. Any misconduct or violation of these records can cause serious repercussions to both the company and the economy.

Misguided Predictions

The accounting department handles all aspects of financial and valuable resources, and that includes making an accurate analysis of data used to make predictions for the company. Whether more money is coming in or there is room for improvement, an accountant is reasonable for interpreting this information and predicting the value of the company.

However, there has been a recent deficit of accurate predictions, more focused on over-valuing a company. This can often lead to frivolous expenses and wildly optimistic courses of action that could lead to the downfall of a business.

Faulty Practices And Procedures

This is the most abused practice when it comes to accounting cases. 70% of the settlements that the SEC has to deal with come from misguided practices and incorrect procedures involving accounting.

In fact, in 2014 there were 69 new cases of these types of infractions, which was 47% more than in 2010. This infraction can be costly, as settlements have increased a staggering 85% in just one year alone according to the SEC.

Weak Internal Controls

Most of these problems can be avoided with organized, clear-cut systems in place. However, when there is a weakness that hasn’t been identified within the company, it can be crippling and leave it wide open for fraud and infractions.

It’s best to always double check and carefully look at your company's procedures and reports to ensure everything is running with compliance and according to plan.

With more infractions than ever before, it’s important to know and understand what goes on within your company. It’s never a mistake to be overly cautious, especially when dealing with money and revenue streams.  

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