In: Accounting
A company wants to implement good internal control. What are the policies and procedures you can suggest to minimize human frauds and errors?
1. Open & review the bank statement yourself
An obvious but critical task for reducing fraud is reviewing the bank statement. It’s important that you do a quick scan and take notice of anything out of the ordinary. The bank statement should be received unopened — then scanned for any red flags, each check reviewed for authorized payee and signature, and electronic payments approved — before handing off to the bookkeeper.
We recommend an end of week quick review of the bank statement (depending on whether your business has a lot of transactions) with a monthly detailed review of the bank reconciliation.
According to Investopedia: Small business owners should go through the bank reconciliation process at least monthly, and many business consultants recommend doing bank reconciliations weekly or even daily.
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. Detection of embezzlement is difficult when your bookkeeper is the culprit, as they have the knowledge and ability to manipulate your financial records and books.
Business bank accounts are not as protected as consumer accounts under federal law, which means you can’t count on the bank to cover fraud and errors in your account. A drained business account can be devastating. - The Balance
3. Be Systematic in Accounting System Setup
Many small business owners are looking for fraud prevention strategies that won't break the bank. For businesses using QuickBooks®, there are several built-in functions that can do this for you, but you have to take the time to set it up right.
Every defined limitation provides another obstacle to theft. However, too frequently, the set up process is rushed and these critical safeguards are overlooked. You should never default everyone to full administrator rights, share logins and passwords, or give accounts to employees who really have no need for one.
Signs Your Bookkeeper is Stealing and How to Prevent Fraud
4. Separate opening the mail from the accounting function
The person who opens the mail, shouldn’t be the same person who is responsible for accounting functions.
The person who opens the mail keeps track of any checks received
The person who opens the mail should keep track of checks in a physical paper log ofwhat checks were received and when. The checks should be handed over to the bookkeeper or accountant with a copy of the list. This covers both the person who opened the mail, and the bookkeeper or accountant.
Be sure all checks are deposited daily to avoid potential for issues.
5. Don’t let the person who does billing make the deposits.
The person who does the billing should not also be the person who deposits checks. Someone who does both can endorse a check to themselves and delete the original invoice.
You can avoid this form of fraud by separating duties so the person who does the billing is not the same person who is making deposits. By outsourcing the bookkeeping and controller aspects of the business, you are more likely to deter fraudulent activity since there’s more than one pair of eyes watching your books.
Billing Fraud - The most frequently occurring type of fraud in small businesses is billing fraud, which amounts to 27.1 percent of all cases.