Running a business requires a lot of work, and much of that work involves finances. With all the constant changes in laws and regulations, it can be hard to keep up. Luckily, forensic financial services are available to help in many sticky situations.
They can run a simple analysis of your business's finances, or they can spot embezzlement and fraud. If you would like to know more, check out these three reasons you may need forensic financial services.
1. Audits
An audit is a review of your finances to ensure everything is being reported and calculated correctly. Many businesses hire their own auditors to ensure their business is compliant with the IRS to prevent future complications. However, the IRS may also force your business to undergo an audit.
Computer screening and random selection may pick your business for audit if your returns don't match what is considered normal. However, many IRS audits are triggered by red flags on your tax return. This may include misreporting your income to reduce your income taxes, but it can also include excess deductions. If you deduct more than you claim to bring in, the IRS may believe you are under-claiming income or over-claiming deductions.
Similarly, if you have excess expenses that don't match your income, the IRS may fear you are misreporting income. Other possible red flags include large cash transactions, misclassification of employees, and frequent business loss claims, especially in the first year of business.
In addition to ensuring you are compliant with the IRS, audits can help identify other problems, such as missing money that may indicate theft. It can also help determine if you are spending too much or too little money on a specific area.
2. Embezzlement
Simply put, embezzlement is theft, and it usually involves stealing money. There are two main ways an embezzler steals money. First, they may do it slowly by "skimming off the top." However, others take large amounts at once and then flee. Naturally, it's easier to spot embezzlement if someone takes a large amount at once, but slow embezzlement may take your company years to realize while the employee continues to steal.
Forensic financial services can help spot any potential embezzlement even if you aren't sure it's happening. This allows you to catch the criminal in the process. If the embezzler is already gone, you may need forensic financial services to help track them down.
Regardless of how fast the money was stolen, you also need to identify exactly how it happened, so it can't happen again. This may mean putting in new policies or system upgrades. Forensic services help spot where and how the embezzlement occurred.
3. Fraud
Fraud comes in all shapes and sizes, which can make it hard to identify. Above all, however, someone who partakes in fraud does so willingly. Therefore, unless there is glaring proof of willing fraud, you won't get arrested for a few mistakes on your taxes. However, if you have an employee who is willingly committing tax fraud (perhaps to better steal money from your company), you may be in trouble if the IRS discovers the fraud.
However, fraud may come in other forms too. An employee may be lying about their identity, their status, and much more. If an employee is not legally allowed to work or isn't reporting their income under their real name, you may get in trouble for not doing your due diligence. Even if the employee is legally allowed to work, a fake degree and job history may make them "qualify" for a job they can't handle, which can impact your business's bottom line.
Proper bookkeeping and finance recording are paramount to a business. It helps prevent money loss and IRS issues. If you would like to know more, or if you are ready to partner with a great financial and tax services provider,
contact us
at Williams & Associates Tax Services today.
