Preventing Fraud in a Small Business

The statistics about fraud in small business from the Association of Certified Fraud Examiners are staggering:

• 42% of all fraud originates in privately-held businesses
• The median loss in a privately-held business is $123,000
• Two-thirds of frauds are from employees – only 12% had a criminal record
• Frauds take an average of 18 months to be discovered

No system of internal control should be built on trust. Most small businesses have one “trusted” staff person handling all their accounting and financial matters. You can reduce your risk of fraud by taking these simple steps:

1. Open the bank statement yourself
- Every small business owner should receive the unopened bank statement and review each check for authorized payee and signature, and approved electronic payments, before you give it to the bookkeeper. Ask the bank to send an extra copy to your home to make sure you don’t hold up the bookkeeping process.
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.
3. Attach scanned images to each transaction
- Most fraud occurs from check tampering – the bookkeeper changes the payee to themselves. Reduce the risk of fraud by scanning the bill and linking it to each transaction inside QuickBooks. This makes it harder to fake a bill.
4. Close the prior periods
- QuickBooks has a way to lock down the prior periods. Once you produce a financial statement that period should be “closed”. This reduces the risk of hiding a fraudulent transaction in a prior year.
5. Set up username for each user & restrict user access
- QuickBooks has an audit trail report which can never be turned off. However if your staff log in as “Administrator” you have no idea who made what entry.
- QuickBooks Enterprise Solutions has the ability to restrict access per user per screen. Make sure you have separation of duties between authorization, recordkeeping and custodial responsibilities for each transaction.

Simple steps that don’t cost much. But they can make the difference in being part of a growing statistic.