There was always something attractive to me about accounting and finance because I thought numbers didn’t lie. Except they do.
And they keep secrets too.
Here's an overview of why we decided to build Scrutinize.
First, Scrutinize is anomaly detection software that identifies potential fraud, human errors and integration issues hiding in your accounting system. Let's have a deeper look at each of these issues individually.
My most impactful experience related to uncovering fraud came early in my career while working for a phenomenal Controller as his Accounting Manager. We managed the books for nearly a dozen companies in the software development, healthcare, construction, and oil refining industries. One of those companies had its own Accounting Manager when we started taking over the accounting function. She was an older woman with a Southern drawl whose face vacillated between a Cheshire smile and a deep scowl.
Interacting with her was a chore. She complained to the CEO when we asked for anything and never delivered on exactly what was asked of her. It was frustrating, but we kept working through it. One day, about halfway through the transition, we noticed the office supplies line item on the financials was twice as high as it had ever been. After some digging, the Controller told me he suspected something was amiss. He tasked me with performing a deeper dive on the credit card statements to see if they matched what was being recorded in the books.
For a week straight, I asked the other Accounting Manager to give me access to the statements. She stalled, gave me excuses about being busy, then finally sent over an Excel file of the statements. My boss was unsatisfied with that. He sent me over to her office to procure the PDF versions of the statements. As nicely as possible, I told her we were going to lunch and that we needed the PDF statements on our desks before we got back.
We returned from lunch just as she was quickly walking out the back door of the office and jumping in her car. When I went to her office, it was cleared of her things and a single handwritten note was left on the desk next to her computer. The note was a confession of her theft, and a litany of excuses as to why she had done it. After months of forensic accounting, we put together a case against her for the theft of nearly $200,000 over an eight year period.
She ended up spending two years in a federal prison for interstate bank and wire fraud, but the business will never be able to recoup those funds from her $38 per month repayment plan. Since then, I’ve unfortunately found fraud multiple times in other businesses. Of course the money is lost, but more detrimentally, trust is undermined in the remaining members of the team.
A surprising amount of information is still keyed manually into accounting systems. Yes, there are companies that help automate bookkeeping, accounts receivable and payable, and I often recommend them. Even so, a human still has to operate those systems and override their “intelligence” when it fails to understand what needs to be recorded. With humans come errors. These errors can be broken down into the following classes:
Some of these are easier to spot than others. However, they all become difficult to notice when transaction volume increases faster than the accounting department, which is a normal occurrence in growing businesses.
Who doesn’t love the idea of using computers to automate the heavy lifting in their accounting department? Especially when there are tons of great companies being built around this need. The marketing departments of these companies like to promote the ease with which a new user can get set up and integrate the app with their accounting system, which is true. They are easy to set up right, and just as easy to set up wrong.
The issue with setting up an integration incorrectly lies in the sheer volume of transactions that can be added or deleted from your accounting system with a single click. Some of these “smart” systems will happily let you sync thousands of the same transactions multiple times, creating a cleanup nightmare. There are also cases where the mapping between accounts is incorrect and you end up with a mound of reclasses to perform manually.
This type of issue becomes more pressing as more of the accounting department becomes automated. Being able to notice these types of issues rapidly and prevent them from increasing the scope of remediation needed is key.
The common thread in all of these cases is they create certain patterns in your books. Scrutinize finds these patterns and notifies you when they occur. Think of us as a constantly vigilant, never sleeping, extra set of eyes on your books. If there are anomalies in your data, we want you to be the first to know about them so you can fulfill your ultimate goals of protecting your company’s assets and producing accurate financial statements.
For answers to questions you have about this or related topics, schedule your free consultation today.