True Crime for Small Business

So here’s a true-crime example of small business fraud :

A hardware store owner purchases a new computer system.  Despite extensive training, his bookkeeper of 15 years cannot fulfill her duties on the new system.  In tears, she finally resigns.  Over the next two months, he finds that the accounts receivable are overstated by $80,000.  It turns out the bookkeeper was keeping two sets of books.  She billed customers and sometimes deposited their checks in the business account, and other times in her account.   She used different customer payments to “offset” the payments that hadn’t been given to the business.  It gets complex to keep this up, presumably the reason the new system was one item too many to keep track of.   

Let’s talk prevention and QuickBooks.  This scam is common and preventable.  Start with using the Aging Report to look at who is paying what bills.



Then compare this Aging Report against your actual bank deposits.  This is particularly easy if all your payments go to an account called Undeposited Funds.  Typically your QuickBooks preferences are set up to do this.  If that's the case,  then the program has automatically collected the information on each transaction.  As you move through the the bank reconciliation process, it’ll be comparing payments to deposits as you go.  Even though it’s fast and easy, it is important that someone other than your bookkeeper does this.  If you don’t have the staff,  use your accountant (who might also be a QuickBooks Proadvisor).  Please note the link is a shameless plug.

Seriously though, without someone else checking the books this type of scam is pretty easy to do (after all the bookkeeper is essentially doing the same set of steps required for their day job) and relatively hard to detect.  Just double checking this one part of the process when you do the reconciliation can easily pay for itself.  Small effort with big pay off.  The key is doing it consistently.