How to Prevent Creative Accounting

Creative accounting is a practice whereby a company takes advantage of loopholes to show that they are more profitable or financially stable than they actually are. In many cases of creative accounting, the company is not yet breaking the law, but is most likely engaging in unethical behavior. Creative accounting can lead to suspicion, audits by the government and, in the case of fraud, the dissolution of a company. Some creative accounting is simply done in error when an accounting system is not set up for checks and balances. This article will tell you how to prevent creative accounting.

StepsThings You'll NeedTips and Warnings

1. Make sure your company is run under 1 bookkeeping system and 1 accounting system. Large companies often unintentionally promote creativity or error if every clerk, bookkeeper or office manager is left to run their system as they see fit. In the case of a governmental audit, this can be difficult or devastating for a company to find themselves unable to make a good case that the accounting books are solid.
One way to avoid this is to adopt a new and more efficient accounting program. Hire a head accountant to train everyone and to check that everyone follows the new practices to the letter.

2. Hire an internal auditor. Although this may sound unintuitive to audit yourself, it is preferable to check up on your own business transactions before the federal or state governments decide to audit you. It can also help your company to reduce waste, change to a more efficient system and reorganize.
Many professional auditors work in this capacity. Also, many Certified Public Accountants (CPA) work in this capacity in the months after taxes are traditionally submitted.
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Make sure your accountants, clerks and bookkeepers take a certain amount of ethics courses each year. While CPAs are required to