Fraud in Accounting

Detecting the existence of fraud or cheating is very important to maintain the company’s entity. Through this tracing, it is expected to be able to diagnose the presence of symptoms of fraud so that corrective actions can be taken in accounting. In accounting, there are two types, namely errors, and fraud. Fraud can be interpreted as cheating. This fraud is a fraudulent act committed by someone in such a way that it can benefit oneself or a group or can harm other parties, be it individuals, companies, or institutions.

Fraud in accounting can be detected through indications of fraud in the elements of financial statements and on the part of users or personnel who have an interest in accounting information.

Broadly speaking, detecting fraud according to ACFE is:

1. Fraud in financial statements can be detected through analysis of financial statements by taking into account:

• Vertical analysis: analyze the relationship between points in the income statement, balance sheet, or cash flow statement by breaking it down as a percentage.
• Horizontal analysis: analyze the percentage of changes in financial statement items over several periods.
• Ratio analysis: measuring the relationship between item values in financial statements. For example, the presence of cash theft will result in a decrease in the calculation of the ratio.

2. Misappropriation of assets: having an understanding of internal controls will assist in detecting fraud. The methods generally used are:

• Analytical review: review accounts that show unexpected activity.
• Statistical sampling: conducting sampling on certain suspicious items. Existing baseline documents will be tested by sampling to determine unusualness.
• Vendor or outsider complaints: detect fraud through complaints from consumers, suppliers, or other parties.
• Site visit – observation: direct observation of the location to review internal controls

3. Corruption: fraud that can be detected through reports from honest suppliers or co-workers who then analyze the suspects or their transactions. Corruption can be prevented by implementing good corporate governance.

Fraud or fraudulent practices in accounting can be identified from symptoms such as:

a) Cheating on management. This symptom can be recognized by the emergence of mismatches in top management, low team member motivation or morale, high complaint rates, the occurrence of cash shortages, or decreased sales levels.

b) Cheating on employees: The symptoms shown include spending without supporting documents, inaccurate journal entries, loss of supporting documents, or double invoices.

Sources: https://acfe-indonesia.or.id/