According to the ACFE 2018 Report to the Nations Global Study on Fraud and Abuse, U.S. Businesses will lose an average of 5% of their gross revenues to fraud. In fact, private companies and small business rank highest in occupational fraud frequency at 42% compared to large corporations, government, and non-profits. The biggest contributing factor for the increased risk of fraud in small businesses is a lack of internal controls. Outsourced bookkeeping services can help ensure many eyes are reviewing your books which will decrease your chances of experiencing fraud.
Many small business owners will say that they have placed significant trust and responsibility with their bookkeeper. After all, many entrepreneurs turn to family and friends to help them manage their books. It should be noted that nine out of ten employees that commit fraud are first time offenders, and usually, have been with the company for four to five years. Most fraud is committed for the benefit of children or family members, and not necessarily for personal gain. This makes it even harder to determine if an individual’s character makes them more likely to commit fraud.
Since most fraud cases are first time offenders, there are simply is no reliable screening methods that can be used to prevent hiring a potential fraudster. Having one person in charge of a company’s finances, however, puts the business at great risk of internal fraud. The only way to stop bookkeeping fraud is to implement internal controls that help deter, prevent and detect fraud.
1.Divide Job Responsibilities
When you have just one or two employees handling your books, your company has a higher risk of fraud. The person paying the bills might be the one reconciling the bank account, and because there isn’t a separation of duties, you have just given them the keys to the bank. They can steal from you and cover their tracks. And you won’t find out until it’s too late.
Most small businesses have a single designated “money guy/girl.” When one person is in charge, they can easily cover their tracks or simply rely on the fact that no one else is closely checking the books. Proper internal controls ensure that the flow of information into the accounting system is accurate, timely and classified correctly during the right period. It also provides a series of checks and balances that help reduce the risk of getting ripped off.
Outsourced bookkeeping services help reduce the risk of fraud associated with your business’s accounting because there is a separation of duties and more rigorous steps taken when providing financial statements for the business. Most outsourced companies have two sets of eyes reviewing each step with different levels of staff working on one account. There are steps taken for one employee to review the others work to ensure there aren’t any discrepancies or errors.
2. Restrict Manual Payments
Another common form of fraud is where employees make cash payments and take out more than they need and fail to return the change. Another common fraud scheme is when an employee with check-writing abilities two checks, one in proper payment and one made out to themselves, to pay a bill.
When checks must be used, use a bank that lets you create and mail a check online, or use accounting software that prints checks with the payee’s name and address, check memo and amount. These checks will automatically be entered into your accounting systems and are more difficult to alter. Any manual checks will raise a red flag for further investigation.
Cash should be replaced with company credit or debit cards whenever possible to create a full electronic paper trail.
3. Review All Reports Monthly
Even if bookkeeping work is done by two separate people, there should be a manager that reviews their work monthly. Fraud can be committed by more than one employee, so having a manager review reduces the risk of collusion in fraud and will allow fake entries to be detected much quicker.
When proper controls are in place, this takes little time beyond the work managers should already be doing to monitor the financial health of the company. The manager simply needs to compare the total of the month’s receipts and invoices against the amounts entered in the books, and cross-check both figures against the cash in the bank.
Other reasons companies outsource bookkeeping services
- Cost Effective
- Expertise
- Accuracy
- Consistent Reconciliation
- Backup
- Allows you to focus on core business
Final Thoughts
The vast majority of bookkeepers do a wonderful job and are ethical in their dealings with their clients and employers. But as the old saying goes, an ounce of prevention is worth a pound of cure.
One of the most effective ways to reduce your risk of fraud is to outsource your bookkeeping, accounting and control functions to an experienced provider. This eliminates the risks associated with a lack of internal controls and ensures that every transaction is checked for accuracy.
It’s important to understand that no system of internal controls can completely eliminate the risk of fraud. All it can do is make it harder for fraudsters to steal or increase the odds that they get caught quickly so you reduce the risks to a minimum. If two employees are colluding, that’s hard to spot. It’s not impossible; just harder.
Limitless Investment and Capital’s Outsourced Bookkeeping Services
By outsourcing your bookkeeping and accounting, your business is better positioned to scale instead of building an accounting department. As a result, your head can stay in the game instead of in the books. This also means your most valuable resources, your employees, are able to focus on core activities that benefit your clients and add greater value to your overall business. We also offer an unlimited transaction bookkeeping package that includes access to a FREE financial controller. Call us today to learn more about our packages and pricing.
