So, it’s Accounting Fraud season again, with the funding winter laying bare some worst-kept secrets in the startup world. The GoMechanic disclosure seems like another déjà vu.
Inflated sales continue to be at the heart of all frauds.
While everyone obsesses about the underlying reasons, valuation pressure, ‘lack of CFO’, etc, what many forget, is that many potential revenue reporting frauds could happen even with a CFO at the helm, and worse, s/he may not even be aware of it.
Accrual accounting introduced in the industrial age, where you could recognise non-cash sales as revenue, gave rise to a new breed of creative salespeople. Under pressure to deliver growth? Simply print fake invoices and ship imaginary goods or services to fake buyers. A well-worn trick that still works.
Oh, but we have Auditors who are supposed to check this….
It will take Sherlock Holmes to detect this from the outside. How do you expect external auditors working on tight deadlines to figure this out? Hence the traditional Audit disclaimers like “based on the information and facts disclosed to us”! Any wonder that most of the frauds reported in the public domain have one of the Big 4 as auditors?
Now, the scary part. How do you, the CFO, know that Sales are not being inflated?
A CFO ‘trusts’ the Sales people and people down the chain that they have actually delivered the goods/ services and the invoice. And in this day and age of instant incentives and gratification, that’s a dangerously slippery slope.
Do you expect the CFO to call each buyer to check whether the invoice is OK? Again, your sellers may not like you contacting buyers directly, due to relationship sensitivities.
Imagine a CFO spending sleepless nights, worrying about a blow-up.
So how do you, the CFO, get assured that the Receivables sitting on your books are indeed genuine and not the result of an elaborate cook-up?
This is where Receivables Management through Technology comes in. Platforms like Kapittx, have tools to tell you how many of your invoices have been Delivered, Accepted, Disputed, Or Rejected.
In one dashboard, the CFO has an overview of where s/he needs to focus for revenue assurance. Automated payment reminders directed to the buyer give you a bird’s eye view of the probability of collection quite early. Have a direct automated line of communication with your buyer without disturbing the relationship dynamics.
And, of course, the deep insights into buyer behavior, helps you sharpen your process and provide better revenue assurance.
Kapittx helps the CFO sleep better!