6 simple controls to help prevent fraud from being committed by your bookkeeper

The first person that knows you don’t know how to read your financials is your bookkeeper. That is why, according to the Association of Certified Fraud Examiners annual report, nearly half of all small businesses experience fraud at some point in their business lifecycle. It will cost these organizations an average of $114,000 per occurrence. Worse, such fraud is usually committed by a "loyal" employee.

It’s far too easy for an unscrupulous accountant or bookkeeper to commit fraud especially when the owner doesn’t have his or her finger on the financial pulse of the company.  So here’s six simple controls to help prevent fraud from being committed by your bookkeeper:

  1. Review your bank statements on a monthly basis. The main reason is so you can scan all of the checks that cleared during the month to make sure all of the vendors names are familiar. Be sure to inquire about any vendor that you don’t recognize.

  2. Review your payroll register each pay period to ensure that there aren’t any fictitious employees on the payroll. Once again, ask your bookkeeper if a name is unfamiliar to you.

  3. Sign the checks (or at least review and approve the check run before the checks are cut). This is another way to prevent your bookkeeper from preparing checks to fictitious vendors.

  4. Have an employee other than your bookkeeper prepare the bank reconciliation.  This will ensure that someone besides your bookkeeper will check that all payments and receipts that have gone through the bank account have also been recorded in the accounting records.

  5. Have an employee other than your bookkeeper open the mail and stamp all the checks received ‘for deposit only’ and fill out a deposit slip.  This will ensure that all checks sent to the company will be accounted for and deposited into the bank account.

  6. Review your financial reports monthly! Your financial information shouldn’t be reviewed once a year during tax time. At the least, review the monthly and year to date income statements compared to last years information. Be sure to ask questions on any information you don’t understand.

If you do all six steps, you will have placed several important controls into the daily operations that will help prevent fraud and make your bookkeeper aware that you do have a finger on the financial pulse of the company.