As tax season approaches each spring, companies rush to organize their financial documents in preparation of filing tax returns. This annual process is not only mandatory, but often enlists the assistance of many professional accountants in charge of readying and arranging these very complex returns.
While individuals, partnerships and corporations under law are required to file returns, keeping tax professionals busy for months on end each year, another aspect of accounting is increasingly being incorporated into the business models of companies across an array of industries and verticals.
Forensic accounting, or the practice of uncovering behavioral patterns, errors and fraud through the analysis of documentation, specifically in spreadsheets, has long cropped up in large organizations like financial and government environments as a means to dig deeper and be attuned to inside business practices. Whether it’s to map the flow of funds, search for transaction patterns, or dredge up evidence of criminal conduct, these corporations certainly understand the impact such a practice can have on their litigation strategies, and even reputations.
It’s only been a few years since the technology risks created by spreadsheet users have garnered enough attention for business professionals and auditors alike to realize the need for proper analysis of documents, like spreadsheets. "Spreadsheets, used improperly or without sufficient control, pose a greater threat to your business than almost anything you can imagine," said Philip Howard, research director at Bloor Research and renowned advocate for spreadsheet management. "A further complication is that most large organizations have probably thousands, if not tens of thousands, of spreadsheets distributed across the enterprise. Not only are these uncontrolled, they are unknown."
Spreadsheets may be leveraged in business environments for functions like accounting, financial analysis and scenario-based calculations, but in many cases, users are taking advantage of this pervasive business tool to engage in fraudulent activities. According to a 2010 KPMG presentation, users have found ways to conceal and manipulate relevant data through practices like hiding rows, applying formatting tricks to spreadsheet, altering hyperlinks, and falsifying inputs.
As the technology landscape evolves and spreadsheet fraud awareness comes to the forefront, forensic accountants are beginning to venture beyond the labor-intensive process of mulling over thousands of pages of spreadsheet data. According to one expert, the chief reason accountants in general still resort to traditional practices of data entry and documentation organization has to do with an outdated business model dependent on these professionals taking up more time to perform duties that results in additional revenue.
As reflected in recent statistics on the prevalence of fraud, now is the time for companies to consider implementing a detection solution beyond basic practices, as inaccurate findings or manual sorting of documentation can be extremely detrimental in today’s fast-paced business world. According to the Association of Certified Fraud Examiners’ 2010 Report to the Nations survey, the median fraud loss is $160,000, lasts 18 months before discovery, and is characteristically committed by a trusted employee with no prior criminal record. In addition, a quarter of fraud cases in the survey involved losses of at least $1 million.
While the manual forensic accounting process has long been a reliable revenue stream for accounting firms, they are now discovering that forensic accounting technology solutions can be more advantageous than the alternative, which can potentially diminish productivity and increase the chances of inaccuracy. With an uptake in technological advances, forensic accountants are inevitably forced to re-evaluate the manner in which they investigate fraud so as to not lose money and risk inconsistencies.
“As the economy has declined, instances of fraud have increased making now the perfect time to evaluate your business' risk of fraud and take proactive measures to protect your bottom line,” stated Tommie Singleton, Ph.D., and CRI’s (News - Alert) Forensics Scholar-In-Residence, as reported in a press release.
Incisive is one company leading the way in forensic accounting solutions. Its leading spreadsheet analysis program, Xcellerator, is built to assist in the digestion of critical accounting reports. Acting as an overlay that verifies all of the data present within a spreadsheet file, this solution allows for powerful error detection and investigative capabilities to help forensic accountants effectively analyze information. As a result, Xcellerator significantly reduces material errors and potential fraud as well as the hours associated with manual spreadsheet analysis.
“Financial fraud in spreadsheets can be extremely hard to detect manually,” Diane Robinette, president of Incisive, told TMCnet. “There are many tricks, like putting a formula cell thousands of rows away from the main information or making a formula’s text the same color as the cell background so it blends in. If companies aren’t actively looking for anomalies, it’s easy for others to manipulate information. Spreadsheet detection solutions should be able to quickly find these inconsistencies and show users how to fix them.”
For more information on the spreadsheet analysis solutions offered by Incisive, check out the company’s website, and bookmark the Forensic Accounting channel, exclusively on TMCnet, for the latest news in this ever-growing space.
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Tammy Wolf is a TMCnet web editor. She covers a wide range of topics, including IP communications and information technology. To read more of her articles, please visit her columnist page.
Edited by Tammy Wolf