Fraud occurs because a person believes they will not be caught. Opportunity seeded by poor internal controls generates the inspiration. Couple this with financial need and inadequate penalties and your deep
pockets become fair game. Is your business at risk?
Internal controls are financial checks and balances designed to protect your organization. They are intended to make sure money is being spent as planned. Controls also provide some assurance that money or valuable assets do not disappear and that mistakes do not occur.
Some internal control procedures are designed to discourage errors or irregularities before they happen. These controls are supported by other controls designed to identify an error or irregularity after it has occurred. The most effective internal control procedures require that no one person handle all aspects of a financial transaction. Not always possible in a small company, here are some that are:
Internal Controls Procedures
* 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.
* 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:
   o Reports Menu > Company & Financial Reports > Balance Sheet Standard
   o Drill down on the checking account balance
   o Modify the date range
   o 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.
* Do spot checks on inventory quantities and compare to QuickBooks reports
* Have an Employee Handbook (http://www.qbalance.com/Human_Resources.htm) that includes a policy that all cases of fraud will be prosecuted, with zero tolerance.
* Find a means for dissatisfied employees to voice their frustrations. The motivation for many fraud cases is ‘getting back/even’ with the employer .
* Make sure every employee takes regular vacations. If fraud activity exists it is likely to be detected when someone else assumes the job temporarily.
* Perform background checks on employees Don’t forget a check on your temporary employees as well
* Be aware of employee actions.
   o Are they living a life style not commensurate with their wage income?
   o Are they the first to arrive at work and the last to leave?
   o Are they taking vacations?
   o Are they adequately supervised?
   o Are they repeatedly forced to manually make journal entries, batches, etc… that should have normally been handled by the system?
* Password protect your QuickBooks file. Download our free QuickBooks passwords and permissions checklist: http://www.qbalance.com/Permissions_and_Password_checklist.pdf
* 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 “http://www.qbalance.com/QuickBooks_Premier_Products.htm” to easily transfer data files to safe offsite locations.
Linda Saltz is a Certified Public Accountant, Certified QuickBooks Pro
Advisor and QuickBooks Seminar Leader. For over 20 years she has been
helping small businesses create greater efficiencies with computers
and increase profitability through proper planning and interpreting
results of operations. Visit http://www.qbalance.com to find answers
and articles to QuickBooks and business questions.
