• Bank Reconciliations should balance and be performed timely.  Statements that consistently do not reconcile may be an indication of sloppy bookkeeping or a more serious indication of employees helping themselves to company assets.   Unreconciled differences will appear in a QuickBooks equity account "opening balance equity". Check this account regularly, except for QuickBooks set-up transactions, this account should not hold any transactions. Review bank statements very carefully, check for unfamiliar fees charged by third parties, and check bank statements online at least twice a month.
• Print every reconciliation report and file with the original bank statement.
• Bank balance adjustments should require approval from an employee other than the individual(s) entering the transactions.
• Periodic review of the checking account register by the owner/controller, will deter thoughts of misdeeds. Create and memorize the following QuickBooks report for this purpose:
  

  Reports Menu > Company & Financial Reports > Balance Sheet Standard Drill down on the checking account balance Modify the date range For companies that assign customer names to expenses: Modify Report and include the payee by placing a check next to "source name"

• Keep blank checks locked up, account for missing numbers and periodically inventory the remaining stock.
• Have an  Employee Handbook that includes a policy that all cases of fraud will be prosecuted, with a zero tolerance. Value company integrity.  Workers who observe illegal or unethical conduct at their jobs during the previous year are more likely to rationalize fraudulent behavior. So keep a squeaky clean office.  Set up a hotline for other employees to report fraud.
  A study by KMPG showed that only 4 in 10 of individuals who suspected that colleagues were committing a fraud, stood up to the plate and reported the infraction. Fraud is a serious accusation and if a colleague does not have proof but simply a suspicion and if being wrong results in job loss or demotion, or,  a fear that having knowledge may backlash into being considered as a co-conspirator, are all fears that hinder a potential whistleblowers from coming forth. Create policies in your employee handbook that reward information on nonconforming business practices. . Assure employees that all reports will be fully investigated and no action will be taken until proof is obtained.
• Find a means for dissatisfied employees to voice their frustrations.  The motivation for many fraud cases is 'getting back/even' with the employer.
• Payroll fraud accounts for 10% of business fraud cases, be sure to divide payroll tasks between two trusted employees who are responsible for data input and the review process. Make sure all payroll information is totally secure and password protected. Don't write passwords down or make them too easy to hack.  Red flags  that would suggest review are high federal or state payroll taxes; or a payroll provider that delivers multiple packages during the payroll period.
  Honest employees don't know what fraud looks like.  Educating employees on what a dishonest employee can do will help to create policies that will discourage and uncover any fraud actions.  For example:  Payroll fraud includes paying employees for more hours than worked, paying overtime rates for hours not worked, setting up fictitious employees and creating paychecks, continuing to pay employee's that have been terminated (perpetrator will intercept and cash the check) and while you would think the terminated employee would recognize an inaccurate W2, this is not reality, as long as they receive a tax refund at year end, they are happy.  Sit down with your employees and brainstorm for policies that help to prevent these acts from occurring.
• Make sure every employee takes regular vacations. If fraud activity exists it is likely to be detected when someone else assumes the job temporarily.
• Watch for business red flags and investigate promptly
  • New hires quit soon after starting
  • Vendors who insist on dealing with just one individual
  • Unable to identify the cause of lower gross margins or high overhead
  • Employees with unreasonable close relationships with suppliers
  • Customer complaints of missing invoices or transactions on invoices that were not ordered or received.
  • Employees that have external businesses may find your coffers to be a means to reduce their overhead.
     
• Perform background checks on employees  Don't forget to check on your temporary employees as well
• Be aware of employee actions.

  Are they living a life style not commensurate with their wage income? Is there unexplained wealth or sudden change in lifestyle? Are they the first to arrive at work and the last to leave? Do they show signs of reluctance to take leave? Are they taking vacations? Are they adequately supervised? Are they repeatedly forced to manually make journal entries, batches, etc... that should have normally been handled by the system?* Staff under stress without a high workload - marked personality changes Do they refuse promotion? Don't hire individuals who may have the motivation (financial need) to embezzle  Ask potential employees these questions: We do background checks on all finalists. Do you have any concerns about that? We do a criminal check on all finalists. Do you have any concerns about that? We contact all past employers. What do you think they will say? Will your past employer tell us about any negative job-related issues? Can you explain where you were during these gaps in your resume? A study conducted by by KPMG uncovered a few trends about about who the typical perpetrator of a fraud is likely to be: - directors/senior managers committed almost two     thirds of the 100 cases surveyed - 32 percent of fraudsters had been working for their   companies for 10 to 25 years - 51% of fraudsters did not work alone

• Password protect your QuickBooks file. Download our free QuickBooks passwords and permissions checklist
  Limit access to employee records to prevent Identity theft. Limit access to customer records to prevent Credit Card theft.
• Back up your QuickBooks file and keep the backup off premises away from the harm of a disgruntled employee. Think about using the remote access in the QuickBooks Premier version to easily transfer data files to safe offsite locations
• A few do's and don'ts to improve your internal controls:
  • Former owners may not make for good employees
  • Banks do not check the endorsement on each check you write, so make sure you make it a step in your monthly bank reconciliation. Look at checks made payable to unknown vendors or persons; checks made out in even amounts; dual endorsements; and checks to cash and to employees.
  • Segregate financial duties- approve payments, write checks, bank reconciliations, place orders, customer billing, apply customer payments, etc.
  • Have a complete written supporting  documentation for each financial transaction. Do not allow accounting to rely continuous verbal assurances from the employees who hold supervisory positions.

A ripe environment for fraud is when an opportunity arises that can be rationalized by the employee who has additional outside pressure or incentive to respond to that opportunity.  So keep the guard up with watchful eyes, always evaluating - is there opportunity? is there financial pressure or gain? is the employee content?.    Don't wait for signs of fraud to grab your attention.  Doing so could mean significant loss of income to the company  Create proactive fraud policies that include procedures to aggressively seek out fraudulent conduct and insist that these procedures be conducted at regular intervals.