In Pursuit of Profit
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Whether the problem is nefarious in nature or not, incorrectly accounting for expense reimbursements can open a business up to an IRS audit. Being audited consumes time and resources even if the business being audited prevails. However, it can also cost a company in fees and penalties if misreporting problems are discovered. For this reason, improving cost reimbursement policies and processes should be a top priority for companies that want to not only mitigate fraud risk but also reduce their likelihood of being audited.
It all comes down to cash flow management. Cash flow is the tie that binds. Everything your accounting and finance personnel do is centered around managing the company’s finances to ensure they can acquire customers, run daily operations, pay staff, meet financial obligations, make necessary expenditures, and reinvest into the company. Simply put, they ensure that cash will be there today and tomorrow to keep the business going (and hopefully growing as well!).
Nothing sends chills down a business owner's spine, quite like being notified that you are being audited. The worry that you have accidentally overlooked something critical or done something incorrectly can be extremely nerve-wracking. Furthermore, trying to understand why you are being audited can cause business leadership to fret from the very beginning. Even before the audit has begun, the entire process can be confusing and stressful.
Preparing for and weathering an audit is a lot of work for business owners that likely have too much on their plates already, especially when the audit is dragging on. Therefore, it is crucial to have an accountant (especially a CPA) or consulting CFO to lean on throughout the audit process, no matter how long it takes. But if your audit seems to be taking longer than it should, it is essential to understand what the hold up is to mitigate your future audit risk.
During an audit, financial inaccuracies are typically uncovered that have broader business implications. Whether these inaccuracies are the result of fraud, mistakes, or ignorance, they can have deleterious effects. Internal audits may unearth problems that negatively affect financial statements and financing attempts, while federal tax audits can identify issues that result in costly fines and penalties.
Understanding which inaccuracies auditors find most often provides a foundation for self-imposed accountability. Focusing on areas where problems typically exist equips business owners with the information needed to improve financial accuracy and make smarter business decisions.
Furthermore, exercising extra caution around common problem areas protects the integrity of financial reporting, ensuring that the business’ financial position will be accurately represented to potential investors, existing shareholders, and state and federal authorities.
Billing fraud is the most common type of fraud that small businesses experience, accounting for 27% of all fraudulent activity.
Billing fraud primarily occurs in one of three ways, when employees:
While employees may justify their illegal actions due to need or entitlement, billing fraud ends up costing small businesses billions of dollars every year.