Accounting malpractice is a serious threat to the well-being of a business. Unfortunately, many companies find out there’s a problem only after it’s too late. Learning the various signs that accounting malpractice is occurring can save your business financial and legal problems. It can also help your organization adopt strategies to reduce the likelihood that such malfeasance will occur. Stanfield Bechtel Law examines how you can protect your business.
Red flags you need to know about
Accountants are trusted to assist with maintaining the financial health of a business by preparing and examining financial records, identifying risks, and ensuring that taxes and expenses are paid properly. If your business is noticing any of the following, there’s a chance that the accountant or accounting firm is being negligent:
- Internal financial records or audits contain false, inaccurate, or incomplete information
- Business tax returns are being improperly prepared or filed
- Tax returns or other tax documents aren’t being filed on time or at all
- The accountant’s tax advice is inaccurate or outdated under current regulations and laws
- Bookkeeping data reveal suspicious records such as excessive amounts of voided transactions
- The accountant fails to properly maintain the business’s financial records
- Your company’s revenues are exaggerated or false
- The accountant breaches a fiduciary duty, such as failing to disclose conflicts of interest
- Failure to adhere to GAAP, GAAS, AICPA, or other accounting standards
All of these should invite closer scrutiny and prompt you to start asking questions. If your business is rather large, there’s a good chance that there are more than a few mistakes affecting a small number of parties. Chances are that what you’ve uncovered is merely the tip of the iceberg.
How to prevent or reduce the chances of accounting malpractice
No risk mitigation strategy is perfect, and there are exceptional cases in which particularly negligent accountants can inflict a great amount of harm in a short period of time. Nonetheless, there are a few ways your business can make accounting malpractice less likely to occur:
Adopt strong internal financial and accounting controls. Passwords, electronic access logs, and lockouts can keep unauthorized individuals out of your company’s accounting and financial systems. They can also let you know who had access to this information and when. Different individuals or departments should handle various roles in your business such as deposits, reporting, bookkeeping, and auditing.
Regularly audit and reconcile accounting records. Routine testing of your business’s bookkeeping can spot irregularities, which often show up as repeated patterns of misconduct over time. A third-party service can assist with this process. You may even wish to hire a forensic accountant if you have specific questions about the accountant’s work.
Implement fraud detection software. There are various tools that can detect alterations and other indicators of fraud within your company’s records. Although it does not eliminate the need for a human to examine your books, softcare can quickly spot errors and abnormalities that should lead to further review and perhaps auditing.
Establish a fraud reporting system. Employees who learn about suspicious accounting activities should be encouraged to report it to management. A confidential reporting system is especially useful since a large portion of accounting negligence is uncovered through employee tips. Whistleblowing protects your business and fosters trust between employees and management.
Legal Advice for Handling Accounting Malpractice
In the event you discover accounting fraud or negligence, taking quick action can save your business significant financial losses. That’s where the Connecticut accounting malpractice attorneys of Stanfield Bechtel Law come in. To learn more about protecting your business and its legal interests, connect with us today.