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Fraud Prevention: How to Keep Your Books Secure


Fraud Prevention: How to Keep Your Books Secure


Guy taking money (fraud)Bookkeeper Pleads Guilty to $1.5 Million Fraud Scheme

That headline represents a small-business owner's worst nightmare. The person you trusted to ensure your finances were handled properly and professionally instead exploited your trust for their own gain.

How can you be sure this will never happen to you?

Segregation of Duties Is Key
It's shocking how much damage an unscrupulous employee can do to a small business. In the case cited above, a bookkeeper at a Virginia construction company pleaded guilty to funneling $1.5 million into her own account over eight years.

The devastation can be psychological as well as financial. That's certainly the case when the guilty party is a trusted friend or even a family member.

From day one, you need to establish a system of internal controls that includes segregation of duties. It might feel awkward, particularly in a small family business. But delegating responsibility for, say, reviewing invoices to one person and paying invoices to another person is vital.

Having a second set of eyes review all such financial transactions not only cuts down on potential errors, but it also cuts down on potential temptation. You never know what an employee, even a close relative, will do when faced with personal financial pressures. Some might even convince themselves that they're only going to "borrow" money from the company and pay it back later. The best bet is to have systems in place that prevent desperate employees from even considering a scheme like that.

Go Paperless
Paper documents are a common source of fraud — checks in particular. As much as possible, eliminate paper docs in favor of systems such as electronic funds transfer (EFT), which offer heightened scrutiny and security. (The bookkeeper convicted in the $1.5 million fraud case wrote unauthorized checks on the company's accounts and also misused a company credit card.)

In general, the more you incorporate secure software such as into your bookkeeping procedures, the greater your protection against fraud. Too often, paper solutions are an engraved invitation to steal.

Of course, you still need to protect your electronic financial information, too, by securing all company computers and not sharing passwords, among other safeguards.

Consider Outsourcing
One reason many a small-business owner hands over full responsibility for the company's finances to a single bookkeeper is that the owner lacks the time, the expertise — or, in many cases, both — to handle the books personally. Staying involved, even in a supervisory capacity, can create a significant distraction. Whatever time the owner or other employees spend looking over the bookkeeper's shoulder is time not spent growing the business.

Outsourced bookkeeping services can be the ideal solution. Outsourcing can provide the kind of transparency and checks and balances that many small businesses simply don't have the resources or infrastructure to implement. In addition, outsourced services are scalable.

They're not free, of course. But as the Virginia company that was bilked out of $1.5 million would tell you, these services can be well worth it.
Bill Davis


Bill Davis

Legal and Tax Disclaimer

This website is created by Supporting Strategies to provide general bookkeeping and accounting information only. Supporting Strategies does not provide tax, legal or accounting advice, and the information contained herein is not intended to do so. As such, the information provided should not be used as a substitute for consultation with professional tax, legal, and accounting advisors, and you should consult with a tax, legal and accounting professional before engaging in any transaction.