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Simple Controls You Can Put Into Place to Discourage Fraud

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As a business owner, there are many simple controls that you can put into place to discourage fraud from happening.  Small business owners never intend to leave their doors wide open to theft and white collar crime – it just sort of happens; and unfortunately, small businesses have every reason to be concerned about fraud.

Fraud is often a cost of doing business that is hidden from view and unfortunately most business owners only know about fraud only when it’s discovered; after the fact and then it is sometimes too late to do anything.  Eliminating fraud completely isn’t possible, but with reasonable actions made by the business owner, it’s impact can be limited.  Preventing fraud from occurring in the first place, however, is a win-win situation.

fraud preventionThis final article in our series on fraud will provide you with several simple, inexpensive  controls that you can put into place to discourage and/or prevent fraud from happening in your business.  Download the other articles in this series on fraudPart 1:  Warning Signs & Red Flags of Fraud – Are your Employees Stealing from you? and Part 2:  Business Susceptibility to Theft and White Collar Crime – Are You a Target?

These articles were part of a webinar called, Stealing More Than the Secret Recipe – Identifying and Safeguarding Against Business Fraud, that I did with two really great ladies;  Kimberly Shannon of Off-Site Business Services, Inc. and Shamese Shular of SHU Books.  Each of us had specific topics relating to business fraud and I decided to take my sections and turn them into a series of blog posts.  I believe that both Kimberly and Shamese will also be turning their sections of the webinar into blog posts – so be sure to visit their websites for additional information on this topic as well.

Simple, Inexpensive Controls You Can Put into Place to Discourage Fraud

Perform backgrounds checks – make background, Credit, and Driving Record checks a part of your normal/standard pre-employment screening.  About 15% of employees who commit fraud are multiple offenders. About 85% of employee frauds are crimes of opportunities perpetrated by first-time offenders who believe they can avoid detection.

Segregation of duties – the person who handles the actual “cash” should NOT be the same person to create a bank deposit and then take the “cash” to the bank.   Make sure that you separate mail room type duties from Bank Deposit duty.

Cross train employees – ensure at least two people are involved in specific tasks or transactions.  For example, an employee who processes customer receipts should not also be the person to record customer credits or handle the write-offs for bad debts.

Enforce employee time off – no individual should be indispensable.

Periodic review of accounting records by an outside person or company –  hire an outside consultant – or have your CPA/Tax Preparer – perform regular audits of the books for discrepancies.  Waiting for an Annual Review could be too late.

Review Financial Reports – Profit & Loss and/or Balance Sheet Reports, looking for anything out of the ordinary; perhaps thousands of dollars under Office Supplies or Postage.

Review Audit Trail and Other Reports – regular reviews of the Audit Trail Report within the accounting software – yes, even QuickBooks has an Audit Trail Report (Reports menu-> Accountant & Taxes -> Audit Trail). Review these other reports in QuickBooks as well – Closing Date Exception Report, Customer Credit Card Audit Trail, Voided/Deleted Transactions Detail, Voided/Deleted Transactions Summary – these reports can be confusing but learn how to read them and what you should be looking for.

Keep track of your company’s checks – purchase & use pre-numbered checks and periodically check for missing check numbers in you accounting software. In QuickBooks use the Missing Checks report- Reports menu ? Banking ? Missing Checks.   Implement a simple procedure for handling voided checks – create an Expense Account on your COA called Voided Checks – all voided checks MUST be assigned to this account, use the memo field to indicate why the check was voided (printer jam) and the original amount of the check. Periodically generate a report on this specific account. In QuickBooks go the Lists menu ? Chart of Accounts ? scroll down and select this account -> click the Reports button ? choose Quick Report.  And remember – this account should always have a zero balance.

Sign and review all the checks that leave your business yourself or implement a policy that requires dual signatures on checks for more than a specific amount – DO NOT give up check signing responsibility, or purchase a signature stamp and then give it to your employees!  If you purchase a signature stamp it should be for your use ONLY and kept in a safe place (under lock and key).

Make the bank deposits yourself on a nightly basis – whether your business receives payments in the form of cash or checks – you should be the one to take the money to the bank yourself. If your business deals with a lot of cash (restaurant or store) make it a policy that there should be no more than a specific amount of cash in the drawer at all times or that the register be balanced at shift change by the person leaving and the person coming on duty, run the register receipts and as the owner you do the final tally at the end of the day.

The business owner should have business bank and credit card statements sent to his/her home address.   As the owner you should review all bank and credit card statements and actually reconcile the accounts in your accounting software.

General QuickBooks Controls & Procedures

  1. As the business owner YOU should setup the Administrator account and password
  2. Each employee (including yourself) who has access to QuickBooks should have their own QuickBooks login account (you should create the accounts and passwords)
  3. Login under the Administrator account ONLY when reconciling the monthly checking and credit card accounts
  4. Set closing dates at least once a quarter after payroll reconciliations and use the Closing Date Exception Report
  5. Monitor A/R & A/P reports weekly to see who owes you money and to determine what bills that YOU want paid
  6. DO NOT use the QuickBooks feature that allows you to upload a graphic of your signature that will print on checks

Download the slides from the Stealing More Than the Secret Recipe – Identifying and Safeguarding Against Business Fraud webinar.

In closing – never having faith in your employees is a bad thing; so is always trusting them.  Or, as Mark Twain said, “Trust everybody, but make sure you cut the cards.”

What other safeguards would you suggest that a small business owner put into place to prevent fraud?

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About Your Host:

Nancy Smyth, Certified QuickBooks ProAdvisor

Nancy Smyth, Sunburst Software Solutions, Inc.
QuickBooks Construction & Payroll Expert


I've been using and supporting QuickBooks products since the early 1990's. I've worked with thousands of contractors, assisting them with QuickBooks setup, Certified Payroll Reporting requirements, AIA Billing and Weighted-Average Overtime.


QuickBooks is a powerful product, but learning how to use it in your construction business can be difficult. I hope you find resources available here to be helpful.

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