You have spent a year as a trustee of St. Etheldreda's. You have attended all the meetings. Recently you were appointed to the finance committee. The nagging question keeps chewing at you. "How do we know that our employees aren't stealing from us?" After all, hardly a day goes by without yet another report of some trusted employee stealing from one organization or another.
1. Does one person have control over all of your accounting functions?
2. Are two signatures required on checks over a pre-determined amount - say, $500?
3. Are checks ever pre-signed?
4. Are your bank accounts consolidated so that your bookkeeping accurately reflects the school's true financial position?
5. Is there petty cash lying around?
6. Are different people assigned to the deposit and account reconciliation functions?
7. Do you have a purchase order system?
8. Does your committee review expenses and supporting vouchers carefully and frequently?
9. Does an outside auditor review your books annually?
10. Do you run background checks and speak to references before you hire?
Require an annual audit
“Don’t let one employee do all the accounting and bookkeeping”
Because of their size, many small businesses have one person that always handles bookkeeping functions like:
This makes it easy for cases of fraud to go unnoticed. Businesses should have at least two people handling these functions – with accounting and cash-handling separated.
Bento Technologies suggests that you automate bill payments.
Small business accountant Thomas J. Williams recommends putting bills on autopay is an effective way to prevent fraud.
“Do not let employees have access to checks,” he recommends. “Use the bill-pay feature on your business bank account to send your payments automatically.” Further, make sure that the person who pays the bills is also the person who opens the mail. This eliminates a huge opportunity for fraud.
There are also several QuickBooks apps that help automate payment tasks. And if you’re ready to take security a step further, consider going completely paperless.
Conduct surprise audits.
Catching an employee off guard could be your best bet in discovering fraud. "The key is that an employee generally doesn't know what's coming and won't have the time to change the records to hide the fraud," says John Gill. Additionally, auditors have sampling and computer data analysis techniques that help uncover fraud. Using these techniques, auditors can quickly examine, say, the payment of 1,000 invoices in detail, including invoice numbers, to whom payments were made, and when payments were made, and quickly determine those that are suspicious. "We've seen cases where somebody creates a phony company, submits invoices to accounting and accounting sends payment to a P.O. Box," says Gill. In one case, Gill recalls, an employee who set up a fraudulent business through which he submitted preprinted, consecutive numbered invoices to his employer every few months. When the auditors examined the invoices, particularly the invoice numbers, it seemed funny to them that the business submitting the invoices didn't have other clients or was having an extremely slow year since each consecutive invoice was sent to the company. A surprise audit also can uncover duplicate invoice amounts and duplicate invoice numbers, both of which can be red flags for possible wrongdoing.
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