Small and medium-sized businesses are prone to internal accounting fraud for a number of reasons. In most cases, the reason these companies are at risk is that they have a one-person accounting department. Often times, these types of businesses lack the budget or simply don’t have enough work to necessitate hiring more accounting staff. The problem these business owners face is that the same person who manages the money coming in is the same person to see the money going out. This lack of supervision opens the door of opportunity to fraud. Segregation of duties can be difficult when you only have one employee to oversee, but utilizing your resources can help make it manageable. We’ve come up with a few options to help create a healthy level of control without micromanaging your one-person accounting department.
1. Owner/Manager Supervision
My first recommendation: the owner or manager should establish a regular, physical presence when the accounting staff is working. This person doesn’t need to constantly look over the employee’s shoulder and you definitely don’t want to micromanage them. The goal is to establish and send a message of accountability to the employee by having a manager or owner present. The supervising party should regularly ask questions and show an interest in the accounting operations. If the task is done correctly, you can benefit from the segregation of duties without having to hire additional staff.
Secondly: check the bank statements against the GL. many business owners have that one trusted employee that they allow to do everything for them. They are never questioned and given the full reigns to do everything necessary. However, this creates an opportunity for fraud. All business owners should do one thing that’s critical. They should review the bank statement in details. They should review it in details and compare it to supporting documentation and what was recorded in the general ledger. Small business owners can’t afford a whole accounting department or the ability to segregate duties. If employees know that this is reviewed it minimizes the risk of errors or fraud.
2. 3rd Party Quarterly Review
Having a 3rd party quarterly review can significantly increase your business’s security of assets. Often, business owners don’t even know whether their CPA cleaned up the books prior to doing their tax return. This means that they can’t be confident that a full review is being done on the books, which could potentially mask hidden red flags. Having a 3rd party review can ensure that your money is going where you want it to. The process includes collecting details of how your money is flowing and verifies that you’re only paying what you actually owe.
3. Gaining Better Control of Your Books
Having safeguards on all systems, including QuickBooks, can help protect your business from internal accounting fraud. The goal of having these safeguards in place is to give the owner complete control whenever they need it. As an owner, you should not only be able to access your books via your own private password but also have the ability to lock out other users whenever necessary. You don’t need to hire additional staff for segregation of duties, just try these 3 settings for additional protection:
a. Admin rights: This setting will allow you to adjust who has access to what. Keep in mind, some materials shouldn’t be accessible to everyone.
b. Setting closing dates and passwords: This feature allows the owner to control changes for a previous period by restricting access. For example, you can set it so that previous months aren’t accessible without a password by month’s end.
c. Data audit report: This report provides an immense amount of detail on all transactions. When filtered appropriately, it can give you a good sense of activity trends and minute details.
4. Technology
There are websites and apps that allow the user to bypass some of the physical steps in the accounting process as well as give much more control and oversight. Utilizing websites such as Bill.com, which allows you to accept paper bills directly from the vendor, can be extremely beneficial. Staff can still manage bills electronically, but the owner has control over approval steps and settings. This means you determine how or when they get approved and paid. Explore all of your resource options. There’s bound to be a company, app or website that can help you gain better control over whichever step of the accounting cycle you need.
Hiring additional accounting staff can be costly and unnecessary, but it doesn’t mean you have to forfeit control and protection. Explore the resources you can use to help with the segregation of duties for your one-person accounting department. If you need help designing an accounting department that’s right-sized and affordable for your business, feel free to contact us. We’d be happy to help! Click here to learn more about our firm’s audit and internal controls services.
By: Dana Bierer, CPA
Senior Audit Manager at WHH
