I am a licensed CPA in both New York and Massachusetts, and a member of the American Institute of Certified Public Accountants.
Audit Trail Within QuickBooks
The QuickBooks audit trail is a great tool for business owners, CPA’s, forensic accountants and anyone who is concerned about the integrity of the accounting files they use. Unfortunately, there are dishonest employees who look for weaknesses in systems and perpetrate fraud everyday.
My bookkeeping firm, Outsource Your Books LLC, has been brought in on several recent engagements to review clients’ QuickBooks’ files looking for anything out of the “norm.” On one recent engagement, I discovered $32,000 of theft simply by reviewing the “audit trail.” Since discovering this theft, the employee has been fired, and is awaiting criminal prosecution. Without the audit trail, this may not have been discovered. A smart thief who does his or her research may know that this function exists, but let’s face it, some thieves are not the brightest bulbs. What a lot thieves, who happen to use QuickBooks don’t know, is that every move they make is being ‘tracked’ by the audit trail.
The QuickBooks audit trail provides a “fingerprint” of everything that is entered within your QuickBooks file. It tracks each user’s entries, modifications, voids and deletions. Yes, it shows corrections and errors that are made by honest employees too.
In the audit trail, if an entry has been changed or deleted there will be several entries for one transaction. Without going into too many specifics of what is displayed, here are a few: adjustments, the user who made the change, changes made, and some other key indicators. This tracking information makes the audit trail a useful tool in helping identify theft. Some examples of common fraud are: changed check amounts, changed invoice amounts, duplicate checks issued, dates changed, post dated checks, changes to payee and complete removal of entries.
In addition to the QuickBooks audit trail, I also use these other security measures in the fraud reviews I perform:
- Closing Date
- Use this feature to lock transactions prior to a date in order to prevent unauthorized entry into prior periods.
- This helps with fraud and also helps with the accounting process by preventing entries into prior periods.
- Make sure you enter a password (QuickBooks doesn’t make a password mandatory, but it should). Your bookkeeper should not have this password. It should be controlled by the business owner and/or CPA.
- Users and Permissions
- Use permissions to separate tasks and functions. Depending upon the version of QuickBooks you are using, this can be quite extensive. QuickBooks Enterprise has the most features and can really limit control of what each user can do.
- Use the “admin” user for the owner or CPA only. The “admin” controls the Company Preferences and gives the person handling the day-to-day bookkeeping more power then he or she needs.
- Mandate individual usernames and passwords. This makes it easier to monitor who entered or changed an item on the “audit trail.” If everyone uses the same username, there is no way to prove who did what, resulting in a very poor control procedure.
- Limit who can “print” checks and transactions.
- Control “sensitive” reports that can be viewed
- Prevent access to the Payroll module
There are many steps an owner can tale to reduce or eliminate the opportunity for theft, but the simplest one is to “stay involved”. I have seen numerous occasions where the business owner delegates functions, performs no review and ultimately gets in trouble. The US Chamber of Commerce estimates that 75% of employees steal at least once and that half of these steal repeatedly. Don’t let this be you.
The Chamber also reports that one of three (33%) business fail as a direct result of theft.
Stay involved, stay alert, look over their shoulders, review your bank statements and don’t let the dishonest employee win. This is your company so take control.
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