Accounting Fraud Prevention

Accounting Fraud Prevention

See Also:
Accounting Depreciation
Account Reconciliation
Cash Flow Projections
How to Develop a Daily Cash Report
Future of the Accounting Workforce

Accounting Fraud Prevention

A small business owner typically cannot afford to hire enough people to have proper separation of duties to gain the internal controls needed to prevent accounting fraud.

Using Internal Control and Prevent Accounting Fraud

Every business owner can achieve accounting fraud prevention by taking these simple steps:

1. Open the Bank Statement Yourself

Every small business owner should receive the unopened bank statement. Then they should review each check for authorized payee and signature and approve electronic payments. Only after they do the above should they give it to the bookkeeper.

2. Don’t Let Your Bookkeeper Reconcile the Bank Account

The person who pays the bills should never reconcile the bank account. That’s how they cover their tracks. If you don’t have someone else to do it, then this is an easy function to outsource.

3. Close the Prior Accounting Periods

Once you produce a financial statement, that period should be “closed”.  As a result, this reduces the risk of hiding a fraudulent transaction in a prior year.

4. Attach Scanned Images to Each Accounting Transaction

Most fraud occurs from check tampering. For example, the bookkeeper changes the payee to themselves. Prevent accounting fraud by scanning the bill and linking it to each accounting transaction.Thus, this makes it harder to fake a bill.

5. Set Up Username for Each User

If your staff login as “Administrator,” then you have no idea who made what entry. Set up a username for each user that way you can track who did what and when.

6. Restrict User Access

Make sure you have separation of duties between authorization, record keeping, and custodial responsibilities for each accounting transaction.

No system of internal control should be built on trust. The best accounting practice is to separate out the following functions: authorization, record keeping, and custodial responsibility for assets in each accounting transaction.


accounting fraud prevention using quickbooks, accounting fraud prevention

ARTICLES YOU MIGHT LIKE

What Happens When Companies Don’t Have Internal Controls

While we never aim to scare our clients and readers, we have a huge plethora of war stories about what happens when companies don’t have internal controls. Just in my 18+ years of experience, I’ve compiled all the crazy stories for you today.  What Happens When Companies Don’t Have Internal Controls  So, what happens when

Read More »

The Silo Effect

We hear about the Silo effect in companies all the time. Silos are formed in the large public companies as well as in small private companies. These organizational Silos can impact the profit potential of an organization because each department or silo is kept separate from one another. In this blog, we’re looking at the Silo

Read More »

The Red Flags of Fraud

Businesses lose millions (if not billions) of dollars due to fraud. But how do so many cases of fraud go unnoticed until the damage is done?  Often, it’s because businesses don’t recognize the red flags of fraud soon enough. Working with many entrepreneurs and their companies for the past 25+ years, I have unfortunately have

Read More »

JOIN OUR NEXT SERIES

Financial Leadership Workshop

MARCH 28TH-31ST 2022

THE ART OF THE CFO®

Financial Leadership Workshop

Days
Hours
Min

September 12-15th 2022

Days
Hours
Min
SHARE THIS ARTICLE

JOIN THE NEXT STRATEGIC CFO™ WORKSHOP SERIES

Strategic CFO™ Financial Leadership Workshop
The Art Of The CFO®

Days
Hours
Min

December 5-8th, 2022