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Accounting Fraud Prevention Using Quickbooks

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

Accounting Fraud Prevention Using Quickbooks

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 Controls

Stephen King, CEO of GrowthForce, says that, “Internal controls can help reduce the risk of fraud, make it easier to train and manage staff, and help your company run efficiently by having solid processes and control activities in place.” The place where most companies encounter fraud is in their own company, so it’s critical that every company sets up internal controls and continues to update them as changes occur.


Download eBook The CEO's Guide to Reducing Fraud


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

QuickBooks now has a way to lock down the prior 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 inside QuickBooks. Thus, this makes it harder to fake a bill.

5. Set Up Username for Each User

QuickBooks now has an audit trail report which can never be turned off; however, 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

QuickBooks Enterprise Solutions has the ability to restrict access per user per screen. 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.

The CEO's Guide to Reducing Fraud


Originally posted by Jim Wilkinson on July 23, 2013. 

accounting fraud prevention using quickbooks, accounting fraud prevention

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Debits and Credits

See Also:
Accounting Asset Definition
Accounting For Factored Receivables
Financial Accounting Standards Board (FASB)
Imprest Account
Accounting Fraud Prevention using QuickBooks
Accounting Income vs. Economic Income

Debits and Credits Definition

Debits and credits, defined as the double recorded method which is the centerpiece of accounting, are used by accountants across the world. The benefit to using debits and credits, is that they provide double redundant record keeping for expenditures; money is both added and subtracted. This creates 2 places for expenses on financial records, thus preventing issues from improper recording.

Debits and Credits Explanation

Debits and credits, explained as the error-proof method for accounting, allow accountants to have twice the recordsDebits and credits basics exist as such: there is a debit and credit account for each of the journal entries. Debit accounts is where money is taken from the company. Whereas credit accounts is where money is added to a business.


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Debits and Credits History

Debits and credits accounts were formally invented in the 15th century by Luca Pacioli, as an official system to specify what was already used by merchants in Venice. These formal roots trace as far back as the Roman empire. There a side for a creditor and a side for a debtor existed. They used this system in the Middle East, Florence, and the Mediici bank. They finally found a home in Venice.

Debits and Credits Rules

In either of these, a debit or credit can occur. If a debit occurs in a debit account, then the company loses money. If a debit occurs in a credit account, then money is taken from a company to be later added to another company credit account. To make the double entry work with this contra accounts were created: accounts which exist merely to balance the effect happening in another account. This is how debits and credits double entry can occur. It may seem confusing to the average person, but accountants love that this method is redundant. It lends to pristine recording, which you can check in multiple places.

Debits and Credits in Bookkeeping

Any respectable accountants uses the double entry bookkeeping method. For example, debits and credits in quickbooks allow the system to make sense to the accountant as well as the untrained record-keeper. Through software like Quickbooks, this method has become readily available and useful for everyone.

Example

For example, Steven is a part time bookkeeper for a small boutique in a strip mall near his house. He shows up to keep records for the company owners, who are too busy with the operations of their business. Quickbooks is Steven’s best friend when he is in the office.

But Steven never understood how credits and debits work. Then, one day, the company accountant visited the office. He was able to pick her brain. The experience was quite enlightening.

The accountant told Steven about how double entry bookkeeping works. By showing t accounts debits and credits examples he finally understood. This eventually proved useful.

One day, Steven overheard the owners express how their financial records had an error. After listening, he was able to look at the records. He took his knowledge of accounting, recently learned, to move an unnamed expense in the software. This corrected the problem, and the owners even gave Steven a bonus.

Understanding credits and debits in accounting has greatly helped Steven. After his experiences, he decided to become an accountant. And he will work closely with these records for the rest of his life.

If you want to add more value to your organization, then click here to download the Know Your Economics Worksheet.

debits and credits

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Common Problems in Charts of Account

Accountants are often great at, well, accounting, but tend to get lost in the detail, preferring to count expenses down to the paper clip level instead of focusing on what truly matters for a company’s profitability. Nowhere is that more evident than in the chart of accounts they create. What are some common problems in charts of account? Let’s dive into it below

Common Problems in Charts of Account Design

Here’s a look at the common problems in charts of account and some recommendations for improvement:

Too Many General Ledger Accounts

Often when using QuickBooks or Peachtree accounting software the number of general ledger accounts grow over time. Usually the person entering the data is not a trained accountant. When faced with an accounting entry not specifically described by an existing general ledger account, they will often set up a new account. It is especially easy to do in QuickBooks.

Too Much Detail in Selling General and Administrative Expenses

Similar to the problem mentioned above, often the person maintaining the general ledger is a detail oriented employee. This trait is both a blessing and a curse. The theory goes as follows: If a little detail is good then a lot is better! In order to get more and more detail on the general ledger they set up new general ledger accounts. In the end they are counting paperclips with numerous accounts with less than a thousand dollars charged to them….”

If you want to add more value to your organization, then click here to download the Know Your Economics Worksheet.

Common Problems in Charts of Account

Strategic CFO Lab Member Extra

Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

Common Problems in Charts of Account

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