Hello:
I think financial analysis is the wrong term. Financial analysis
involves taking financial data and interpreting the results to
determine the financial strength of the company, trends and a basis
for 'trying' to predict the future financial results based past
results.
What you are interested in is an audit; specifically a fraud audit.
An audit involves examining the financial transactions, typically
called 'source documents' (as opposed to high level results found on
financial statements) and tracing these transactions to other sources.
For example, your first question about failing to record credit card
purchases. If a sale is 'rung up' (say at a store, website, or other
places where money is accepted), the source document would be recorded
a slip of paper which would come in the form of a receipt printed out
by a cash register or credit card processing machine. If the
transaction was transmitted for approval, the credit card company
would have a record. Fraud detection can involve tracing transactions
from an external source to an internal one. In any case, money will
be coming from the credit card company, as a merchant account must be
connected to some kind of automated deposit mechanism. The failure to
the related sales for these transaction would result in a "mismatch"
of the banking records to the general ledger (where the accounting
entries are recorded). In other words, in this case, there would be
more money in the bank than recorded on the books. I can't think of a
way to steal money like this. The more typical fraudulent approach
would be NOT to record the sale at the time of the transaction.
Difficult to cover up too, because only CASH sales would be
'temporarily' covered up. In this scenario, the 'thief' takes the
cash and does not record the sale. I say this is 'temporary' because
ultimately, the fraudulent transaction(s) are exposed. Something will
not match. In the case of a store selling inventory, these fraudulent
sales not rung up will show up in the form of inventory shortage.
While shrinkage is a part of doing business, excessive theft will lead
to larger shrinkage. Also, in a larger company, there is typically a
different person doing the books than ringing up sales. This is a
'built-in' internal control. Colusion would have to come into play
under this scenario. For a small company, you should never have the
same person ringing up sales and preparing the financial statements.
It is too easy to cover up the fraud. The key is 'segregation of
functions.' This may not always be practical for smaller
organizations.
Just have time to answer only one of your points, but you get the
idea. If you suspect fraud, bring in an auditor who specializes in
'fraud audits.' They know exactly where to look and how to detect
fraud. Fraud is easy to cover up to management, especially if the
operations do not support good internal controls. It may even get
past a general audit (if the nature of the theft is not too big). If
you look for fraud and all the records are there, the thief will be
revealed. Accounting is a series of checks and balances.
Good luck.
Signed,
Bored Ex-Accountant |
