Forensic Accounting Methods

📊 Must-Know Excel Formulas for Internal Auditors ✅ VLOOKUP / XLOOKUP – Find missing or incorrect data 👉 Example: You’re auditing supplier invoices and need to check if every invoice in the accounts payable report exists in the purchase order report. Instead of manual checking, use XLOOKUP to instantly match invoices and flag missing ones. ✅ IF & IFERROR – Error-proof your audit checks 👉 Example: While checking expense claims, you can use: =IF(B2>10000, "High Risk", "OK") to flag claims above a threshold for further review. ✅ COUNTIF – Find duplicate or suspicious transactions 👉 Example: Identify duplicate vendor payments by using: =COUNTIF(A:A, A2) If the count is more than 1, you have a duplicate! ✅ SUMIF / AVERAGEIF – Summarize risk areas 👉 Example: Find the total value of high-risk transactions by summing only those that exceed a specific amount: =SUMIF(B:B, ">10000", C:C) ✅ TEXT, LEFT, MID, RIGHT – Extract hidden insights from data 👉 Example: If invoice numbers start with a branch code, you can extract it using: =LEFT(A2, 3) ✅ Identifying Missing or Delayed Payments using XLOOKUP Scenario: You're auditing customer payments and need to check if all invoices have corresponding payments. Formula: =XLOOKUP(A2, Payments!B:B, Payments!C:C, "Missing Payment") ✅ Detecting Duplicate Invoices using COUNTIF Scenario: You suspect duplicate invoices in the sales ledger, which could indicate fraudulent transactions. Formula: =COUNTIF(A:A, A2) ✅ Aging Analysis for Overdue Receivables using IF & TODAY() Scenario: You need to identify overdue invoices and categorize them into aging buckets (0-30, 31-60, 61-90 days). Formula: =IF(TODAY()-B2<=30, "0-30 Days", IF(TODAY()-B2<=60, "31-60 Days", IF(TODAY()-B2<=90, "61-90 Days", "90+ Days"))) ✅ Customer Credit Utilization using SUMIF Scenario: You need to check if a customer has exceeded their credit limit. Formula: =SUMIF(A:A, "Customer_Name", B:B) ✅ Trial Balance Verification using SUMIF Scenario: You need to check if all debits and credits match in the trial balance. Formula: =SUMIF(B:B, "Debit", C:C)-SUMIF(B:B, "Credit", C:C) ✅ Bank Reconciliation using Conditional Formatting Scenario: You want to highlight bank transactions that are missing in books. Steps: 1. Use XLOOKUP to compare bank statements and books. 2. Apply Conditional Formatting to highlight missing records. Formula: =XLOOKUP(A2, Bank_Statement!A:A, Bank_Statement!B:B, "Not Found") ✅ Variance Analysis using ABS & IFERROR Scenario: You need to compare budgeted vs. actual expenses and highlight significant variances. Formula: =IFERROR((B2-C2)/B2, 0). ✅ Fixed Asset Depreciation Calculation using SLN Scenario: You need to calculate straight-line depreciation for fixed assets. Formula: =SLN(Cost, Salvage, Life) #Dailypost #Knowladge #ExcelForAuditors #Finance #O2C #R2R #AuditTools #ProcessImprovement #Excel #InternalAudit #Finance #DataAnalytics #ProcessImprovement #post #AuditTools

He is a CA who has spent nearly two decades in forensic accounting. He has personally studied 1,000+ companies in India & over 300 companies globally to uncover what most investors miss. He has faced police threats, lawsuits, & even spent 2 weeks in jail for exposing a corporate fraud, yet he continues to share his findings transparently. He has identified multiple reporting blunders, including a GST fraud by inflating revenue through inter-depot transfers, as well as an interesting case of a car company claiming a fake 24-month waiting list. He is none other than Nitin Mangal, the Founder of Trudence Capital Advisors Private Limited and a veteran in the Forensic Audit space. In the latest episode of Konversation with Kushal, we went deep into the art of Forensic Research, where Nitin shared his framework for finding red flags in companies. We decoded the subtle manipulation of Closing Inventories to boost gross margins and why the Cash Yield ratio is a useful weapon for spotting scams before they blow up. We also covered real-world case studies like Stove Kraft, EaseMyTrip and Zaggle, exploring why high Related Party Transactions and selective accounting practices are major red flags. This episode is powered by Groww. #linkedin #linkedinforcreators #investing #forensicaccounting #stockmarket #wealth #kushallodha

Board minutes are boring. Until the regulator, the buyer or judge reads them. Then suddenly they are the most important document in the room. The Crispin Odey story in the FT this week demonstrates why. He fired his executive committee twice. Installed himself as the sole member. Then held a meeting alone - with minutes recording an attendee who says they were not even there, with comments attributed to them that they say never happened. That is not a typo - it is alleged falsification of a legal record. Under s.248 Companies Act 2006, every UK company must record directors' meeting proceedings and keep them for at least 10 years. Fail and every director in default commits a criminal offence. But the stakes have quietly got higher. Since the Economic Crime and Corporate Transparency Act 2023, boards can defend against the new failure to prevent fraud offence by showing proper prevention procedures. Good minutes are part of that evidence base. Most boards have not connected those dots yet. And minutes disclosed to the CMA or FCA can be shared with overseas regulators. Your private boardroom discussion can end up in front of a regulator in a country you have never set foot in. What I look for in M&A due diligence Board minutes are where the real story lives. I check for: – Who authorised that acquisition, loan or dividend – Was the authorisation what was required by law (you'd be surprised how often it isn't!) – Whether conflicts were declared and managed – Whether directors considered solvency before distributions – Evidence of genuine debate, not rubber-stamping – How the board handled problems when they arose Good minutes can underwrite a valuation. Bad ones can be part of a thousand papercuts that kill deals by telling the story of poor governance. What to do when the draft minutes leave things out This is where most directors are far too passive. They get a draft - they skim it, approve it, move on. If the draft omits something that matters, ask for the change promptly and in writing. Especially if it leaves out: – A material concern you raised – Genuine challenge, not just consensus – A conflict disclosure – The reasoning behind the decision, not just the outcome – Your dissent or abstention Minutes should not be a verbatim transcript but they need to reflect what actually happened - not the sanitised or the politically convenient version. The real one. 𝗢𝗻𝗰𝗲 𝘁𝗵𝗲 𝘁𝗶𝗱𝘆 𝗱𝗿𝗮𝗳𝘁 𝗵𝗮𝗿𝗱𝗲𝗻𝘀 𝗶𝗻𝘁𝗼 𝘁𝗵𝗲 𝗳𝗶𝗻𝗮𝗹 𝗿𝗲𝗰𝗼𝗿𝗱, 𝗵𝗶𝘀𝘁𝗼𝗿𝘆 𝗯𝗲𝗰𝗼𝗺𝗲𝘀 𝘄𝗵𝗮𝘁𝗲𝘃𝗲𝗿 𝘁𝗵𝗲 𝗱𝗼𝗰𝘂𝗺𝗲𝗻𝘁 𝘀𝗮𝘆𝘀 𝗶𝘁 𝘄𝗮𝘀. If you doubt that, read the Odey coverage again. Board minutes look dull and they feel procedural. But when things go wrong they are the difference between "The board carefully considered this" and "The board, apparently, considered nothing." Boring documents save careers. 👉 What is the worst board minute mistake you have seen - too thin, too polished, or simply wrong?

𝗕𝗲𝗻𝗲𝗳𝗶𝗰𝗶𝗮𝗹 𝗢𝘄𝗻𝗲𝗿 (𝗕𝗢) 𝘃𝘀. 𝗨𝗹𝘁𝗶𝗺𝗮𝘁𝗲 𝗕𝗲𝗻𝗲𝗳𝗶𝗰𝗶𝗮𝗹 𝗢𝘄𝗻𝗲𝗿 (𝗨𝗕𝗢): 𝗨𝗻𝗱𝗲𝗿𝘀𝘁𝗮𝗻𝗱𝗶𝗻𝗴 𝗢𝘄𝗻𝗲𝗿𝘀𝗵𝗶𝗽 𝗦𝘁𝗿𝘂𝗰𝘁𝘂𝗿𝗲𝘀 𝗧𝗵𝗮𝘁 𝗖𝗼𝗻𝗰𝗲𝗮𝗹 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗖𝗿𝗶𝗺𝗲 When it comes to combating financial crime, knowing who truly controls a company is crucial. However, it’s important to recognise that 𝗕𝗲𝗻𝗲𝗳𝗶𝗰𝗶𝗮𝗹 𝗢𝘄𝗻𝗲𝗿 (𝗕𝗢) and 𝗨𝗹𝘁𝗶𝗺𝗮𝘁𝗲 𝗕𝗲𝗻𝗲𝗳𝗶𝗰𝗶𝗮𝗹 𝗢𝘄𝗻𝗲𝗿 (𝗨𝗕𝗢) are not the same. Many organisations stop at identifying beneficial owners, those who have some level of ownership or control. However, to achieve true transparency, one must dig deeper to identify the 𝘂𝗹𝘁𝗶𝗺𝗮𝘁𝗲 beneficial owner. The UBO is the individual who ultimately benefits from or controls a company, often hidden behind layers of complex ownership structures. 𝗪𝗵𝘆 𝗶𝘀 𝘁𝗵𝗶𝘀 𝗱𝗶𝘀𝘁𝗶𝗻𝗰𝘁𝗶𝗼𝗻 𝗶𝗺𝗽𝗼𝗿𝘁𝗮𝗻𝘁? Criminals exploit these layers of ownership to conceal illicit funds, evade sanctions, or avoid taxes. Consequently, regulators around the world are now demanding greater scrutiny of UBOs as a vital component of Anti-Money Laundering (AML) compliance. 𝗛𝗲𝗿𝗲’𝘀 𝘁𝗵𝗲 𝗲𝘀𝘀𝗲𝗻𝘁𝗶𝗮𝗹 𝗱𝗶𝗳𝗳𝗲𝗿𝗲𝗻𝗰𝗲: • 𝗕𝗢 refers to multiple individuals or entities that have some stake or control in the company. • 𝗨𝗕𝗢 is the natural person at the top-the true beneficiary or controller-who typically owns 25% or more of the company. Understanding this distinction is critical for financial institutions, auditors, and compliance teams committed to effectively fighting financial crime. 𝗜𝗻 𝘁𝗼𝗱𝗮𝘆'𝘀 𝗿𝗲𝗴𝘂𝗹𝗮𝘁𝗼𝗿𝘆 𝗲𝗻𝘃𝗶𝗿𝗼𝗻𝗺𝗲𝗻𝘁, 𝗸𝗻𝗼𝘄𝗶𝗻𝗴 𝘆𝗼𝘂𝗿 𝗕𝗲𝗻𝗲𝗳𝗶𝗰𝗶𝗮𝗹 𝗢𝘄𝗻𝗲𝗿 (𝗕𝗢) 𝗶𝘀 𝗴𝗼𝗼𝗱, 𝗯𝘂𝘁 𝗸𝗻𝗼𝘄𝗶𝗻𝗴 𝘆𝗼𝘂𝗿 𝗨𝗹𝘁𝗶𝗺𝗮𝘁𝗲 𝗕𝗲𝗻𝗲𝗳𝗶𝗰𝗶𝗮𝗹 𝗢𝘄𝗻𝗲𝗿 (𝗨𝗕𝗢) 𝗶𝘀 𝗲𝘀𝘀𝗲𝗻𝘁𝗶𝗮𝗹. #FinancialCrime #AMLCompliance #BeneficialOwner #UltimateBeneficialOwner #CorporateTransparency

Banks track money. Maps track place. Put them together with AI and you get a new way to spot crime faster. Geospatial tools already help investigators see odd cash patterns, travel routes and risky sites on a map. AI speeds that work and cuts the need for deep map skills. How it works? 1. Gather the data  Transactions come with time and place tags. Add border crossings, business records and even road maps. This mix shows how money moves through real space. 2. Clean and store  Fix spelling, dates and coordinates so the system can read them. Keep the data in a cloud storage that supports fast map searches. 3. Run the models  • Pattern finder: flags hotspots and outliers. • Network finder: links people, accounts and places. • Forecaster: predicts where risky moves may pop up next. 4. Show the results  Dashboards turn complex layers into clear maps and alerts that any analyst can read. Where does AI add the most value?   • Faster calls  Instant risk scores push urgent cases to the top. • Routine checks  AI runs daily hotspot scans, saving hours of manual map clicks. • Early warning  Forecasts show which suburbs or branches may next see layering or structuring. • Hidden networks  Graph models reveal links between entities, ATMs and routes that look fine on their own. • No-code queries  Employees can type plain questions like "Cash deposits inside high-risk postcodes this quarter” and get answers in seconds. First steps? Start small.  Pick one city and three months of data.  Let a simple anomaly model flag odd deposits. Review hits with investigators. Tune the rules, then roll out wider.  This keeps costs low and builds trust. What's the payoff? AI and spatial data turn raw transactions into clear risk signals. Teams spend less time digging and more time acting before the money moves on. PS: Quick poll: Manual checks or AI maps: which saves you more time? __ 📥 Save for later (top right corner of post, 3 dots) 👤 Follow me (Crispin Yuen 🎙️) for more  ♻️ Reshare if this was helpful __

An auditor and a forensic accountant can look at the same asset and see two very different things. Here is how that difference shows up in practice. In an engagement, a forensic review was initiated after concerns were raised about possible asset inflation. The statutory audit had already been completed. The assets had been sighted and the records reconciled. The forensic team started from the same place: the asset register, purchase invoices, depreciation schedules, and physical verification. The documents were the same. The location was the same. So was the asset. 𝗪𝗵𝗮𝘁 𝗰𝗵𝗮𝗻𝗴𝗲𝗱 𝘄𝗮𝘀 𝘁𝗵𝗲 𝗾𝘂𝗲𝘀𝘁𝗶𝗼𝗻. An auditor asks: • Does this asset exist in the records? • Do the documents support it? • Does it reconcile with the financial statements? A forensic accountant approaches the same asset differently: • Does this asset actually exist in substance? • If it had been fabricated, would the records look any different? • What evidence exists outside management-controlled documentation? Then the question moves beyond the audit trail and into independent validation, such as: • 𝗜𝗻𝘀𝘂𝗿𝗮𝗻𝗰𝗲 𝘃𝗲𝗿𝗶𝗳𝗶𝗰𝗮𝘁𝗶𝗼𝗻 Whether the asset is actually insured, and whether the insured value aligns with what is recorded • 𝗠𝗮𝗶𝗻𝘁𝗲𝗻𝗮𝗻𝗰𝗲 𝗮𝗻𝗱 𝘂𝘀𝗮𝗴𝗲 𝗿𝗲𝗰𝗼𝗿𝗱𝘀 Service logs, AMC contracts, repair history that indicate whether the asset is in active use • 𝗧𝗵𝗶𝗿𝗱-𝗽𝗮𝗿𝘁𝘆 𝗰𝗼𝗻𝗳𝗶𝗿𝗺𝗮𝘁𝗶𝗼𝗻𝘀 Vendor confirmations, site-level verification, or external acknowledgements of the asset • 𝗩𝗮𝗹𝘂𝗮𝘁𝗶𝗼𝗻 𝗰𝗿𝗼𝘀𝘀-𝗰𝗵𝗲𝗰𝗸𝘀 Independent valuation reports or benchmarking against market values • 𝗣𝗵𝘆𝘀𝗶𝗰𝗮𝗹 𝘃𝗲𝗿𝗶𝗳𝗶𝗰𝗮𝘁𝗶𝗼𝗻 𝗯𝗲𝘆𝗼𝗻𝗱 𝗽𝗿𝗲𝘀𝗲𝗻𝗰𝗲 Not just whether the asset is seen, but whether it is functional, installed, and consistent with its description • 𝗗𝗮𝘁𝗮 𝗰𝗼𝗻𝘀𝗶𝘀𝘁𝗲𝗻𝗰𝘆 𝗮𝗰𝗿𝗼𝘀𝘀 𝘀𝘆𝘀𝘁𝗲𝗺𝘀 Comparing fixed asset registers with procurement records, payment trails, and operational data The auditor never failed because they were answering a different question entirely. That is the distinction between audit and forensic accounting. 𝗜𝗳 𝘆𝗼𝘂 𝘄𝗲𝗿𝗲 𝗿𝗲𝘃𝗶𝗲𝘄𝗶𝗻𝗴 𝘁𝗵𝗶𝘀 𝗮𝘀𝘀𝗲𝘁, 𝘄𝗵𝗮𝘁 𝗾𝘂𝗲𝘀𝘁𝗶𝗼𝗻 𝘄𝗼𝘂𝗹𝗱 𝘆𝗼𝘂 𝘀𝘁𝗮𝗿𝘁 𝘄𝗶𝘁𝗵? #Auditor #ForensicAccounting #Fraud #Investigation #ForensicForesight

📔 FATF outlines best practices for countries' virtual asset AML risk assessments TGIF! My nerdy version of a Friday wind-down includes - ice cold prebiotic soda and the new Financial Action Task Force (FATF) toolkit for AML National Risk Assessments (NRA). An NRA is a process by which countries systematically evaluate and address potential money laundering threats and vulnerabilities affecting the country. Countries typically refresh their NRAs every 3 years or so, and often publish the results. The toolkit supplements existing FATF guidance on NRAs. Notably, FATF provided additional guidance for assessing "challenging areas" including virtual assets and VASPs. Key recommendations include: 🔹 Distinct assessments for assets and service providers. Specifically, FATF suggests that countries start by understanding the key assets/tokens in their ecosystem before analysing VASPs, in order to establish an overview of the entire ecosystem. 🔹 Ensuring the appropriate authority leads the assessment. FATF highlights that there are often benefits to having the FIU and the lead crypto regulator involved in the assessment "given the data and expertise they have access to." 🔹 Analysing threats and vulnerabilities, including whether particular asset types or VASPs are more predisposed to being used for criminal activity 🔹 Leveraging a variety of data sources, including supervisory and industry data, SARs/STRs, international information sharing and blockchain intelligence tools such as TRM Labs. FATF emphasized the importance of ensuring the data comes from "reliable and reputable sources" and "avoid[s] bias." It also encouraged countries not currently collecting their own data to consider doing so, and ensuring that data collected can be easily used for its NRA. 🔹 Involving the private sector in the process, which could "provide data where gaps exist and explain how specific VA/VASP products and services are used and misused." 🔹 Identifying and including red flag indicators in the NRA to help both authorities and private sector better detect suspicious activity 🔹 Communicating NRA findings effectively. FATF noted that "VASPs are the newest reporting entities to be brought under the FATF Standards, and therefore they may not be familiar with AML obligations and may struggle to understand outcomes of ML risk assessments. The communication of the results of the risk assessment should take this into account and frame the findings in the context of AML obligations for VASPs." FATF also noted that even in countries where crypto activity is banned, "additional risk mitigating measures may be necessary, including identifying VASPs that operate illegally in the jurisdiction, assessing the risk of VA/VASP services offered in the country by a VASP based abroad, and applying proportionate and dissuasive sanctions to such entities." The guidance included case studies from Luxembourg, South Africa and Egypt (which has banned crypto).

💥 FinCrime Mythbusters 💥 〰️ Myth#10 〰️ Cryptocurrency ❌ Myth: Cryptocurrency is completely anonymous and only used by the criminals ✔️ Reality: Cryptocurrency is pseudonymous. Every transaction is recorded on a public blockchain, creating a permanent digital trail. With the right tools, investigators can often trace flows of funds more effectively. 👉 Regulatory check ✏️ UK regulators, including the FCA and HM Treasury, treat crypto exchanges and custodian wallet providers as ‘obliged entities’ under the UK MLRs. This means they must conduct KYC checks, monitor transactions, and report suspicious activity. ✏️ Blockchain analytics firms have helped trace ransomware payments, sanctions breaches, and even funds linked to terrorism. For example, the takedown of darknet marketplaces has often relied on following Bitcoin trails. ✏️ While criminals do exploit privacy coins, mixers, and cross-chain swaps to obscure funds, regulators are catching up. FATF’s ‘Travel Rule’ and the UK’s implementation of it are aimed at reducing anonymity in crypto transfers. 🛠️ How Crypto challenges legacy transaction monitoring systems? 🖍️ Data mismatch: Legacy TMS consume structured banking data. Crypto transactions are pseudonymous wallet addresses and hashes. Without blockchain analytics integration, red flags go unseen. 🖍️ Identity gaps: Banks monitor verified customers, however in crypto; the counterparty could just be a wallet address. UK MLRs force exchanges to KYC customers, but self-hosted wallets continue to remain a blind spot. 🖍️ New risk typologies: Traditional rule-based systems continue looking for structuring or cross-border fiat layering. Crypto introduces mixers, cross-chain swaps, and DeFi obfuscation. 🖍️ Speed & scale: Fiat monitoring often runs in daily batches. Crypto moves in seconds, 24/7. By the time an alert triggers, funds may already be through five wallets and a mixer 🌪️ 🏹 A little story I have worked on a series of crypto SARs where money mules are tricked into moving money, believing they are helping with a job or a relationship. I have seen victims fall for fake 'investment platforms' and lose everything before they even realized what happened. Don't consider SAR as a paperwork, it is a chance to catch the pattern, break the chain ⛓️, and protect the next person from being exploited. Park the crypto transactions leaving via MSB's and see how it unfolds 🔓 ⚔️ Crypto does not replace legacy transaction monitoring, it infact exposes its limitations. Without blockchain analytics and new typology libraries, traditional systems risk becoming as outdated as a Valyrian steel sword left to rust. #FinCrimeMythbusters #AML #TransactionMonitoring #RiskCoverage #FinancialCrimePrevention #TMStrategy #RegTech #cryptocurrency

The $2M Excel error that almost tanked our Q3 forecast taught me something critical: Everyone makes mistakes in Excel. But after 14 years in FP&A, I've noticed the best analysts catch 95% of their errors before anyone else sees them. Not through luck or discipline. But through following a well-planned system. My error-checking system has saved me from countless embarrassments. With AI tools now "helping" with our models, these checks matter even more - because AI-generated formulas can fail in ways we don't expect. Here's 𝗺𝘆 𝟱-𝘀𝘁𝗲𝗽 𝘀𝘆𝘀𝘁𝗲𝗺 that catches errors before they reach the boardroom: #𝟭 𝗖𝗵𝗲𝗰𝗸𝘀𝘂𝗺𝘀 Calculate your results in two different ways. If both methods match, you're golden. When they don't, you've found your problem before your CFO does. #𝟮 𝗙𝗼𝗿𝗺𝘂𝗹𝗮 𝗩𝗶𝗲𝘄 Hit CTRL + ` to expose every formula at once. Arrow through quickly - inconsistent patterns jump out immediately. Takes 30 seconds, saves careers. #𝟯 𝗦𝘁𝗿𝗮𝘁𝗲𝗴𝗶𝗰 𝗦𝗽𝗼𝘁 𝗖𝗵𝗲𝗰𝗸𝘀 Pick 5-10 critical calculations and trace them to their source. Not random ones - choose the numbers that would hurt most if wrong. #𝟰 𝗦𝘁𝗼𝗿𝘆 𝗖𝗵𝗲𝗰𝗸 Step back. Does your analysis make business sense? Would you bet your bonus on this story? If you can't explain it simply, something's probably off. #𝟱 𝗪𝗮𝘁𝗲𝗿𝗳𝗮𝗹𝗹𝘀 (𝗳𝗼𝗿 𝗯𝗶𝗴 𝗱𝗲𝗰𝗶𝘀𝗶𝗼𝗻𝘀) Compare your model to last period's actuals. Every variance should add up perfectly. Time-consuming? Yes. But when you're modeling a $100M decision, it's worth it. The irony? As we add more AI to our workflows, these human checks become MORE important, not less. AI can build models faster than ever. But it can't tell you if that 47% margin improvement is realistic or if you accidentally compounded monthly growth rates. Your turn: What's your favorite Excel error-catching technique? -Christian P.S. Want my complete FP&A toolkit? I've compiled my top 10 FP&A frameworks that I teach at Wharton here (download it for free for a limited time): https://insidefpa.kit.com/

Why Internal Controls Matter – A Common Fraud Pattern in Small Businesses Over the past 2 years, we have identified 3-4 fraud scenarios working as a forensic auditor for clients where clients would have got suspicion and engaged us to uncover more details. I have noticed a recurring theme in these fraud cases: 'a single person managing the entire accounting function.' Small and growing businesses often operate on lean structures, prioritizing scale over financial oversight. This creates vulnerabilities that accountants can exploit over time: 🔹 One-person control over accounting, compliance, and payments. 🔹 Gaining the founder’s trust after years in the system. 🔹 Identifying loopholes—This loophole could be a simple lack of adequate review of his work or lack of proper audit by the auditors or payment approvals not happening after thorough review. 🔹 The accountant could start small by: a. Inflate his/her salary in payroll. b. Create a ghost employee(Especially in slightly bigger organizations) c. Teaming and lading of vendor payments and utilizing the timing gap for investing in markets/betting/multiple such avenues with a hope that this could create big fortune. d. Duplicate invoice payments where the original payment goes to the vendor and duplicate payment goes to him/her by editing the bank batch file. 🔹 Once the first such instance does not get caught by anybody, the method gets validation and the greed increases. 🔹 When this doesn't get caught by the auditors during the statutory audit, they realize this is foolproof. This can be continued until one day, when the management gets some suspicion and appoints someone to dig deeper. Now, this scenario explains the need of how internal controls is so important in every organization right from a startup to a big listed company. If there are easy loopholes in the system and frauds like this happen, every effort of trying to maximize revenue or minimize cost by the management will look like a joke. How to Mitigate These Risks: ✅ Outsource monthly accounting reviews to professional firms for proper oversight. ✅ As Directors or approving authority, when payment needs to be made, a few basic checks can be done and questions can be asked about the need for payment, service obtained, bank account details, payroll cost of previous month vs current month and reasoning for the same ✅ Conduct independent internal audits for better control. ✅ Tone at the top should enforce ethical conduct and reiterate zero tolerance towards unethical conduct. ✅ Majority frauds happen in procurement, payment process and reimbursements. Tighter controls here can help. ✅ An ethics helpline can be in place to report unethical practice in the organization anonymously. No business is immune to fraud, but strong internal controls can prevent losses before they happen. Founders, are you taking these steps? Nitesh Madan Ashwini #charteredaccountant #ca #founder #finance #cfo #virtualcfo #financemanager