How to Prevent Fraud and Theft

I belong to many bookkeepers groups and one topic I see time and time again is fraud and how it is affecting businesses.  When hiring an out-sourced bookkeeper, many business owners are worried about handing the company's financial responsibilities over to someone they don't know.  What they don't realize is that fraud and embezzlement can also occur with a full-time employee just as much as it could with an out-sourced bookkeeper.  In fact, most of the news articles I read about fraud, theft, and embezzlement are perpetrated by employees.  Here is an example... I recently  read an article about a woman who worked as a controller for an Acura dealership in Pennsylvania.  Here is the first paragraph of that article:

"Patricia Smith, the former controller of an auto dealership in Pennsylvania, is headed to jail after embezzling $10 million from her former boss in a stunning case of a trusted employee looting the business then squandering the cash on luxuries."- ABC News (link to article below) http://abcnews.go.com/Business/employee-scams-car-dealership-10m/story?id=16604125

As a bookkeeper and business owner I am not only shocked that someone could do that but that it went on for seven years before it was detected. 

The key to preventing fraud, theft, and embezzlement is to have proper checks and balances in place.  Here are steps you can take to protect yourself and your business:

1.  Have a separation of duties-  The person who receives cash should not be the same person who takes it to the bank, the person who cuts checks should not be the person who signs them, and so on.

2.  Audit your books at least once a year by an outside and experienced person.  You should also run monthly "Audit Trail" reports in QuickBooks.

3.  When a mistake is made on a check, have your bookkeeper "VOID" the check in QuickBooks (instead of deleting the check).  Make sure your bookkeeper keeps a copy of every check he or she voided.  Often check the check sequences in your accounting program to make sure that all checks are accounted for.  If a check number is missing contact your bookkeeper immediately.

5.  Make sure you receive and review the monthly bank reconciliation detail and summary reports.  These reports will show every cleared and uncleared transaction for that month.  Go over this report with your bookkeeper so he/she can explain why some transactions may not have cleared yet.

6.  Review the images of checks that cleared on your monthly bank statement (you are looking at who the checks were made out to).  If your mailed bank statement does not include images of cleared checks, you can go to your bank's website and print a statement with check copies.

7.  At least once a month, check the journal entries your bookkeeper made.  Look for any unusual entries.  Some of the usual entries are for prepaid insurance, accrued expenses, depreciation/amortization, payroll taxes, etc...

8.  In QuickBooks, set a closing date and password.  This prevents users from making changes in previous periods by making them enter a password before the transaction is saved.


I hope these steps will help you.  Our goal at Kerr Bookkeeping is to help our client's acheive their goals.  Sometimes that goal is to obtain a piece of mind.  That is where this post come in.

For more information please visit our website www.kerrbookkeeping.com or send us an email at info@kerrbookkeeping.com.