When asked, many small and medium business owners expressed significant trust and responsibilities towards their bookkeepers. And you may not be different to this. You may also feel close to your accountants or bookkeepers and believe that everything is in place.
37% of fraud is committed by company insiders. And you know what’s even more alarming? This insidious fraud often goes unnoticed for at least 12 months before being detected, causing an average loss of $8,300 per month. That’s a significant amount of money to lose.
According to the Association of Certified Fraud Examiners (ACFE), the accounting department ranks second after the operational department for involvement in fraud.
27% of owner/executive frauds involved financial statement fraud. That is why it is imperative to have the first line defense against fraud and financial mismanagement.
Quality Bookkeeping: Your First Line Defense to Combat Financial Fraud
No matter the size or industry of your business, you should never assume that you’re immune to financial fraud. It is a constant concern for you, underscoring the critical role of quality bookkeeping.
Let’s delve into the myriad reasons why quality business bookkeeping stands as a stalwart guardian against the looming threat of fraud.
Timely Recording of Financial Transactions
Since the goal is to prevent financial fraud, you should accurately record activities when it happens, rather than waiting until the end of the month.
Sales Transaction: Recording transactions in real-time, concurrent with preparation of the sales invoices and shipment of goods reduces the likelihood of unrecorded sales or manipulation of revenue figures. This proactive approach helps identify potential skimming or fraudulent sales schemes, ensuring greater accuracy and transparency in financial reporting.
Purchase Invoices: You may have a unique system for keeping track of invoices, but it is inevitable to record as soon as they are received and verified. This enables you to identify duplicate payments, fictitious vendors, or inflated expenses.
Cash Receipts: All cash receipts should be recorded immediately by using a cash register, data entry into accounting system, pre-numbered receipt book, or handwritten log, making it harder for employees to conceal cash theft.
Bank Transactions: Timely processing of bank transactions is critical to supporting cash handling internal controls and cash planning activities. This enables for the early detection of unauthorized transactions, such as fraudulent electronic transfers or forged checks, serving as an early warning for potential embezzlement or other illicit activities.
Employee Expenses: You should keep detailed payroll records, inclusive of employee reimbursements, facilitating seamless detection of discrepancies. Timely submission, thorough review, and meticulous recording of expense reports make it harder for employees to submit fraudulent or inflated expenses for reimbursement.
Consistent, Scheduled Accounts Reconciliations
Monthly accounts reconciliation is the cornerstone of accuracy and integrity of financial records.
When you ensure quality financial bookkeeping through outsourced accounting service providers, any effort to manipulate books and entries by internal employees will instantly come to light enabling you to take corrective action.
They follow a step-by-step approach to the account reconciliation process, enabling you to pre-empt any attempted fraudulent transaction that can dent the financial standing of the company. It involves meticulous comparison and verification of cash deposits, merchant accounts, bank statements, vendor statements, general ledgers, purchase orders, invoices, and more.
Creating and Maintaining Audit Trails
Audit trails can make the difference between the effective internal control operations and control deficiencies. How does this work?
Audit trails are a detailed, chronological stamped-record whereby accounting records, project details, transactions, user activity, or other financial data are tracked and traced.
Whether automated or manual, audit trails can capture almost any type of work activity or process from origin to destination. Quality bookkeeping creates and maintains a variety of audit trails that serve as invaluable evidence to pinpoint discrepancies, anomalies, or unauthorized access attempts. You can also identify individuals involved, enabling timely intervention and appropriate action.
Rigorous Internal Control and Checks
Lack of internal controls is a contributing factor in 26% of fraud cases.
Rigorous internal controls constitute the backbone of standardized small business bookkeeping practices. These controls encompass regular audits and checks, separation of duties, and secure financial processes that can significantly reduce the risk of fraud.
Delegation of Responsibilities: Establishing a clear separation of duties minimizes risks associated with errors and fraud.
- Implementation Team – Setup, document sharing, catch up, clean up.
- Service Delivery – Responsible for all deliverables.
- Team Leader – Review work, ensure on-time delivery, meet all service levels.
- Staff Accountant – Day to day Accounts Payable and Accounts Receivable.
- Senior Accountant – Reconciliations, recordings, month-end close, financial statements.
- Quality Assurance – Independent audit processed transactions.
This strategic division enhances internal controls, ensuring accountability and operational integrity.
Accounts Payable & Cash Oversight: With quality small business bookkeeping, you can keep a watchful eye on financial transactions. SMB owners like you are joining the race of being future-ready by leveraging accounts payable automation to identify irregularities, duplicate or erroneous payments, and fraud.
Multi-level Approval: Quality bookkeeping involves multiple checks and balances that deter employees from manipulating financial information and indulging in fraudulent activities and unethical accounting behaviors.
Review Reports Monthly: Even when you have segregated duties, your accounting manager should take little time from regular tasks and review reports monthly. This reduces the risk of collusion in fraud and allows deceitful entries to be detected faster.
Collaboration with Outsourced Accounting Partner
Do I need an outsourced bookkeeper if I have accounting software? Yes, you need outsourced bookkeepers even if you have Sage, Xero, QuickBooks, MYOB, or other leading accounting software.
Outsourcing experts stay abreast of the industry’s latest technology and changing regulations. They handle books with built-in checks and balances to ensure accuracy and timeliness, so your business is not at risk of non-compliance. They provide an additional layer of oversight and accountability, minimizing the potential for internal fraud or unintentional errors.
Making a strategic move towards an outsourced accounting process ensures quality bookkeeping, providing much more than just a means to record transactions and prepare for tax filings. Outsourced accounting also serves as a first line defense against fraud, safeguarding your business from potential financial and reputational damage. They implement standard operating processes for timely recording of transactions, consistent reconciliations, creating and maintaining audit trails, and ensuring rigorous internal control.
Expect a robust bookkeeping process through outsourced accounting partners that act as your first and best line of defense against financial frauds.