Topel Forman News

Today’s Fraud Topic (March 9, 2018)

]

Fighting fraud with everyday accounting tools

When thinking about the ways financial experts can uncover fraud, what usually comes to mind are data analysis and other forensic accounting techniques. But qualified experts also keep everyday managerial accounting practices in their fraud toolkit.

Variance analysis

After an organization finalizes its budget, management may perform a variance analysis, reviewing differences between actual and budgeted performance. If, for example, actual wages significantly exceed budgeted wages, the difference could be due to such factors as wage increases, productivity declines or greater downtime. But it could also signal phantom employees on the payroll.

Fraud experts pay particular attention to variances related to inventory and purchase pricing. Supply-related variances could indicate the existence of kickbacks. Or they might suggest fictitious vendors — where payments go to the perpetrator and no inventory is received in exchange.

The absence of variances when they’re expected can also be cause for concern. If the cost of a critical production component has unexpectedly increased, then the actual numbers should show a variance. If no such variance is found, it could be a sign of financial reporting fraud.

Contribution margin

The term “contribution margin” generally refers to the difference between a unit’s sale price and its variable costs. It’s often used to make pricing decisions, calculate breakeven point and evaluate profitability. But it can also be used to detect fraud.

In general, the contribution margin as a percentage of revenue should remain fairly consistent over time. If the contribution margin is dramatically lower than usual, skimming or inventory theft could be to blame.

Important caveat

These techniques can raise alarms that fraud might be occurring, yet it’s important to remember that they don’t constitute solid evidence. If you suspect fraud, contact us to help you make a defensible determination.

 

© 2018

About Topel Forman

What makes our firm special

Contact Us

Reach out to Topel Forman

Services

Learn what we have to offer

Related News Posts

Topel Forman Welcomes Four New Partners

Topel Forman Welcomes Four New Partners

Topel Forman is thrilled to announce the promotion of four accomplished professionals to its partner group, bringing the total to 16 partners as of January 1, 2025. This significant milestone underscores the firm’s commitment to excellence, leadership, and the growth of its team.

read more
Tax Alert: President Biden Signs Federal Disaster Tax Relief Act of 2023

Tax Alert: President Biden Signs Federal Disaster Tax Relief Act of 2023

On December 12, 2024, President Biden signed into law the Federal Disaster Tax Relief Act of 2023 (H.R. 5863), providing tax relief for victims of various federally declared disasters. This legislation offers benefits to individuals and businesses affected by natural disasters, wildfires, and the East Palestine, Ohio train derailment.

read more