4 Catastrophes a Good Audit Trail Can Help You Avoid
It’s been around since accountants ditched adding machines for Apple II’s, and it’s a feature that—when used correctly—can save your business from some truly nasty predicaments.
Ladies and gentlemen, reintroducing your old, but underappreciated friend—the humble accounting audit trail.
Of course, the idea behind the audit trail is simple, really. When you make an entry or change to your accounting records, your accounting software automatically logs the details for future reference—who did what, when, how, and for how much? It’s the job of the audit trail to make sure the story is always accessible.
As straightforward as the audit trail is, maintaining and monitoring it properly can keep your business out of some complicated messes, including the following:
The Association of Certified Fraud Examiners estimates that five percent of organizational revenues are lost to fraud. That’s more than $3.5 trillion annually defrauded on a global basis. Brought down to the level of the individual organization, the average occupational fraud case amounts to $140,000 of lost revenue.
The audit trail is the fundamental business tool for both identifying and preventing fraud.
Fraud, of course, doesn’t just happen magically. It takes an accumulation of actions that will leave footprints. For instance, a common scheme involves entering a record into the AP ledger, printing a blank check, and then assigning a phony payee after the fraudster has made payment to themselves or someone else in on the scheme. This sort of fraud is relatively easy to detect—if there is an active audit trail being maintained and monitored. A pattern where checks are cut and the payee is assigned afterwards is highly unusual and should stick out like a sore thumb in the audit trail.
The audit trail doesn’t just provide a mechanism for fraud detection, though. The presence of a carefully maintained and frequently monitored audit trail also acts as a powerful deterrant, in precisely the same way as a video monitor, alarm system, or any other visible security measure.
In part two of this series, we will discuss the way the audit trail adds value to IRS investigations and lending or funding rejections. Stay tuned…
Adam Bluemner is a Project Specialist Manager at Find Accounting Software. He and his colleagues have been helping businesses like yours find top field service software options since 1996.