Personal & Business Audits: Why They are Important

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Unfortunately, there are unscrupulous people that prey on the trust of others to divert and steal funds. In personal accounts, money may be diverted by a spouse in advance of a divorce, by an adult child or caregiver of a senior and by others in positions of trust. In business accounts, employees and business partners may embezzle funds and divert them to personal accounts for their benefits. If you believe money has disappeared from your personal or business accounts, it is time for a financial audit.

First, let’s look for weaknesses in personal finance processes that may leave you at risk for being stolen from. Prior to a divorce, one spouse may start hiding cash, traveler’s checks or gift cards, mutual funds, stocks or bonds, or jewelry, collectibles or even tools. This may start a year or more in advance of filing for a divorce. An annual financial audit can help you keep on track of your finances, give you a better glimpse into your current financial situation and give each partner full disclosure into expenses and accounts.

In addition to spouses preparing for a divorce, unfortunately many people take advantage of seniors. This includes both adult children and professional caregivers. Seniors can be especially easy targets, and as a family member, it is important to encourage financial transparency with all of those that are intimately involved in the caretaking of the senior. If you see signs that money or collectibles are disappearing from account or that expenses have become higher without explanation, it may be time to consider a financial audit and investigation.

In a business partnership, there are typically many opportunities for embezzlement either by an employee or a partner. In much the same way, money can be diverted into personal accounts, for various expenditures or into cash. Perhaps expense accounts are being padded, petty cash funds are being depleted or maybe equipment is being purchased for personal use. A financial audit, perhaps even a forensic accounting of your books needs to be completed.

Companies that regularly conduct internal audits have a better idea of their true financial health and can more quickly spot embezzlement or financial losses in the future. Conducting a financial audit also has the added benefit of keeping everyone on their toes and aware that you are keeping a close eye on the books.

Doing an annual audit of your personal and business finances helps you identify losses, misappropriation of funds and embezzlement early on. While none of us want to believe that our spouse, trusted caregiver, employee or business partner would steal from us, it happens – more often than we realize. This type of audit also has the benefit of keeping books, expenses, and documentation in check in the event the IRS audits your personal tax returns or business tax returns. During the process be sure you personally review all financial documents including bank statements, invoices, receipts, purchase orders and petty cash balances. In addition, consider imposing a separation of accounting duties between multiple employees or partners and be sure your accounts are properly safeguarded with strong passwords.

Remember, your financial stability and health is your responsibility. Take the necessary steps to protect your financial future with the proper safeguarding procedures, audit when you suspect anything amiss and use a personal or business accountant to take advantage of all potential tax breaks and incentives.

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