10 Tips to Spot and Prevent Bookkeeping Fraud
Studies indicate that small businesses are affected more often than larger businesses by bookkeeping fraud. The main reason for this is that they have a smaller number of employees working in their organization.
A company that has fewer employees has a tendency to have less separation among jobs, fewer internal audits and less accounting control. In addition, smaller corporations generally develop trust and close relationships among employees and business owners, causing them to be less suspicious and more susceptible to bookkeeping fraud.
Here are a few tips to help spot and prevent bookkeeping fraud:
1. Ensure clear standards have been set
It is important to make sure clear standards are set in the very beginning. You will need to set an ethical tone and appropriate example that starts at the top. Employee manuals may be helpful to establish the values and principles that will guide your company. This will level the playing field and eliminate arbitration.
2. Check background and references
When you hire a new employee, it is a good idea to perform a background check and follow up with their references. You need to know about previous employment, credit, current licensing as well as criminal history. It will cost you money to perform such searches, but it is well worth the money that you spend to ensure the person in charge of keeping your books can be trusted. For instance, you would not want to hire on a bookkeeper with a history of bad credit because crippled finances an honest person does not make.
3. Secure checks
It is important to keep a close eye on your company checks. Using checks that are pre-numbered will make it easier to spot a check that is missing or out of sequence. You should always keep your company checks in a securely locked location, to which no one else has the key. Never sign a blank check and have a system in place for handling voided checks. Review disbursements regularly, scanning for payees that you do not recognize, missing or out of sequence checks and checks that have been made out to cash.
4. Protect payroll
Take time to review every payroll check personally. It may take some time, but it is the best way to ensure your employees are receiving proper payment. This is especially important if your company uses part-time or temporary employees.
5. Control the review of sensitive material
Control who is allowed to receive your company’s bank statements and other sensitive materials within your office. You may even want to consider a separate mailbox for accepting payments, receipts and other sensitive documentation.
6. Think about independent review
All of your general ledger balances and account reconciliations should be reviewed independently by someone unrelated to daily transactions. The reason for this is that bookkeeping in more likely to take place when things are unsupervised and allowed to get sloppy.
7. Consider enlisting the services of a CPA
If you are unable to provide an adequate level of review, a CPA can be hired to take care of the independent reviews, or even provide all bookkeeping services.
8. Annual audits
It is a good idea to obtain an annual audit each year in order to get a bird’s eye view on your business in addition to detecting bookkeeping fraud.
9. Conduct additional research
Search the Internet for tools, articles and other resources to help your company protect against bookkeeping fraud.
10. Ensure all employees have time off
An employee who is stealing from the company will not want to take the risk of anyone finding out what they have been up to, so it is crucial that you make sure everyone takes a vacation.
It is possible for small businesses to be protected by ensuring bookkeeping fraud prevention is a top priority.
A company that has fewer employees has a tendency to have less separation among jobs, fewer internal audits and less accounting control. In addition, smaller corporations generally develop trust and close relationships among employees and business owners, causing them to be less suspicious and more susceptible to bookkeeping fraud.
Here are a few tips to help spot and prevent bookkeeping fraud:
1. Ensure clear standards have been set
It is important to make sure clear standards are set in the very beginning. You will need to set an ethical tone and appropriate example that starts at the top. Employee manuals may be helpful to establish the values and principles that will guide your company. This will level the playing field and eliminate arbitration.
2. Check background and references
When you hire a new employee, it is a good idea to perform a background check and follow up with their references. You need to know about previous employment, credit, current licensing as well as criminal history. It will cost you money to perform such searches, but it is well worth the money that you spend to ensure the person in charge of keeping your books can be trusted. For instance, you would not want to hire on a bookkeeper with a history of bad credit because crippled finances an honest person does not make.
3. Secure checks
It is important to keep a close eye on your company checks. Using checks that are pre-numbered will make it easier to spot a check that is missing or out of sequence. You should always keep your company checks in a securely locked location, to which no one else has the key. Never sign a blank check and have a system in place for handling voided checks. Review disbursements regularly, scanning for payees that you do not recognize, missing or out of sequence checks and checks that have been made out to cash.
4. Protect payroll
Take time to review every payroll check personally. It may take some time, but it is the best way to ensure your employees are receiving proper payment. This is especially important if your company uses part-time or temporary employees.
5. Control the review of sensitive material
Control who is allowed to receive your company’s bank statements and other sensitive materials within your office. You may even want to consider a separate mailbox for accepting payments, receipts and other sensitive documentation.
6. Think about independent review
All of your general ledger balances and account reconciliations should be reviewed independently by someone unrelated to daily transactions. The reason for this is that bookkeeping in more likely to take place when things are unsupervised and allowed to get sloppy.
7. Consider enlisting the services of a CPA
If you are unable to provide an adequate level of review, a CPA can be hired to take care of the independent reviews, or even provide all bookkeeping services.
8. Annual audits
It is a good idea to obtain an annual audit each year in order to get a bird’s eye view on your business in addition to detecting bookkeeping fraud.
9. Conduct additional research
Search the Internet for tools, articles and other resources to help your company protect against bookkeeping fraud.
10. Ensure all employees have time off
An employee who is stealing from the company will not want to take the risk of anyone finding out what they have been up to, so it is crucial that you make sure everyone takes a vacation.
It is possible for small businesses to be protected by ensuring bookkeeping fraud prevention is a top priority.
Dena White enjoys writing about various topics and lessons covered in masters accounting courses.