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5 Ways to Protect Your Business From Bookkeeper Fraud

Countless headlines have shown what can happen if you rely heavily on the wrong bookkeeper. Embezzlement and theft from company accounts can go on for years before they’re discovered, and the consequences of these acts can be devastating to your company. This article will discuss how bookkeeping fraud occurs and share five great tips for protecting your business from it.

Why does bookkeeper fraud happen?

For any time of fraud to occur, there has to be both opportunity and motivation.

All sorts of financial pressures can create the motivation to commit fraud – from gambling debts to pressure from family members.

You might not be able to control the motivations behind fraud, but you can limit the opportunities for it to take place by implementing controls.

The potential impact of fraud

Whenever someone other than you has full access to your bank account, they can take everything inside of it.

Here are some common examples of bookkeeping fraud:

  • Someone in charge of payroll creating fake employees and paying themselves
  • Someone in charge of invoicing changing bank details to their own
  • Someone creating fraudulent invoices for commonly purchased items and paying themselves

Sufficient disruptions to your cash flow could even force your business into bankruptcy.

That’s why, if you see any warning signs of fraud, it’s time to keep an eye out and put practices into place to prevent the likelihood of it happening.

The following best practices can help protect your business from bookkeeper fraud:


1. Implement A Risk Management Program

A suitable risk management program is the first and most important safeguard to take to prevent fraud from occurring within your company.

Your management must make it clear that you will tolerate no forms of dishonesty within your business.

You should also review your insurance coverage annually to ensure that it protects you against internal and external theft.

It’s also worth taking the time to interview your accounting firm, if you have an external one, to ask about what practices they take to screen new staff members so that you know that you have someone trustworthy managing your accounts.

2. Don’t Let A Single Person Do Everything

Successful businesses foster a culture of trust. That said, it’s still essential to have structures that can verify your employees’ actions.

One of the most simple systems you can put in place to reduce the risk of fraud is splitting up bookkeeping functions between multiple people or departments.

Risks of fraud increase significantly when all bookkeeping is handled by a single person, especially if they have full access to company bank accounts and accounting software.

Due to their size, many small businesses often hire a single person to look over all bookkeeping functions. However, this makes it easy for them to redirect funds elsewhere unnoticed.

It would be best if you had at least two people handling financial functions. It’s even better if you can separate accounting and cash handling duties.

The functions you should split up include:

  • Setting up and approving new vendors
  • Bill payment
  • Initiating electronic payments
  • Approving new hires
  • Changing pay rates
  • Processing payroll
  • Reconciling bank and credit card accounts

3. Maintain Strong Internal Controls

Internal controls can go a long way in both detecting and preventing fraud.

They can help you limit stock access, restrict employee access to financial account data, and use audit logs or trails to track and trace all your business’ transactions.

They can help you limit stock access, restrict employee access to financial account data, and use audit logs or trails to track and trace all your business’ transactions.

4. Perform Thorough Background Checks

Every business tries to hire honest employees, but you can’t always rely on trust alone. Make sure you have a formal hiring process to prevent fraud.

Properly screen all staff involved with managing books and records, and thoroughly check through the available information on each new hire. Your complete background checks should include:

  • Employment History
  • Credit History
  • Criminal Court Records
  • Civil Court Records
  • References
  • Bankruptcy History

Complete background checks can help you understand which risk categories new employees fit into. This is especially important if they will be handling cash or managing payments and bank account information.

5. Get Regular Third-Party Bookkeeping Reviews

Periodic reviews from external, third-party accounting firms can serve as a significant deterrent to accounting fraud.

Hiring a bookkeeping professional also means that you will benefit from the knowledge of a financial expert who can advise you on your risk of fraud and the best fraud prevention measures for your company.

If you’re looking for a skilled online accountant in New Zealand whom you can trust to do bookkeeping right, the Consol Group team can help.

To learn more about our accounting services, or for information on how we can help keep you safe from fraud, please get in touch with us at 0800 001 851.

If you couldn't find your answer, or are unsure about the information provided, please don't hesitate to contact one of our dedicated accountants at info@consolgroup.co.nz today!

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