Bookkeeper Fraud

Bookkeeper fraud is a type of white collar crime that occurs when a business’s financial books are manipulated for personal gain. This can be done by inflating or deflating the company’s income or expenses, or by creating fake transactions. Bookkeeper fraud can be very damaging to small businesses, as it can lead to financial instability and even bankruptcy.

Unfortunately, a large number of fraud happens at the hands of people who are closest to business owners. According to a study, employee theft or fraud costs businesses 9% of their yearly revenue. Of these, 85 percent are considered trustworthy employees. 

How Bookkeeper Fraud Happens

Generally, employees have both the opportunity and knowledge necessary to commit fraud if given access to internet banking or cash. Other factors that may contribute include poor financial accounts, lack of management oversight, and/or poor financial knowledge by management.

The typical cause of the mistake is when a business owner assigns one individual the duty of paying bills, issuing paychecks, generating financial statements, and handling bank deposits. Without proper supervision, these activities could result in fraud going undetected for years. The cover-ups might be successful because perpetrators can trust that no one is closely examining the books.

Another red flag is if the bookkeeper refuses to take vacations or have someone cover their duties, as this may indicate they do not want anyone else to see their actions. If you suspect bookkeeper fraud, it is important to address the issue immediately by bringing in an outside accountant to review the financial records and possibly contacting law enforcement.

How to Prevent Bookkeeper Fraud

There are several steps that businesses can take to prevent bookkeeper fraud.

Segregate and Rotate Job Duties

Implement proper segregation of duties by ensuring that no one individual has complete control over financial transactions. Rotate job duties so that employees are periodically switched to different tasks. This can help prevent fraud by increasing oversight and making it harder for a single person to manipulate the books without detection.

Regularly Audit Financial Records

In addition to regular internal audits, consider hiring an external accountant or auditor to review financial records and spot any irregularities. This should be done on a regular basis to ensure financial accuracy and catch any fraudulent activity early.

Regular Employee Training

Educate employees on the importance of proper financial management and prevention of fraud. This includes understanding company policies, reporting suspicious behavior, and recognizing red flags such as refusing vacation or unusual requests for access to financial information.

Additionally, offering incentives for whistle-blowing can encourage employees to speak up if they suspect any fraudulent activity.

Implement Strong Internal Controls

Implement strong internal controls, such as password protection for financial accounts and regular changes of passwords. Monitor internet banking activities and regularly review credit card statements for unauthorized activity. Additionally, establish clear procedures for handling cash transactions and reconcile bank statements on a consistent basis.

Additional Tools to Help Prevent Bookkeeper Fraud

There are financial service solutions available that can not only help you streamline your business, but also assist you in monitoring and/or preventing bookkeeper fraud.

ACH (Automated Clearing House) Direct Debit/Deposit Services

Set up automatic debit services to collect on invoices and payments, as well as make payouts such as payroll. Business owners can take advantage of these services by easily monitoring and customizing alerts to ensure they’re always in the loop.

Positive Pay

Use Positive Pay to automatically match checks presented for payment against a list of authorized payments, minimizing the risk of fraud. This gives business owners the ability to review and decide whether or not to make the payment, helping prevent unauthorized transactions.

Company Credit Card

Use a company credit card to track expenses and monitor spending. Set up alerts to ensure you’re notified of all transactions made on the card, and set limits on employee purchases to prevent overspending.

By taking these precautions, businesses can greatly reduce the risk of bookkeeper fraud and protect their financial stability.

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