Simple QuickBooks Techniques to Thwart Employee Fraud

May 3, 2013 by Ed Becker

Small businesses often overlook the risk of employee theft and fraud. In most cases, weak internal controls leave the door wide open for embezzlement of company funds by unscrupulous employees.

Fortunately, there are several simple techniques that can be implemented in QuickBooks to significantly decrease the risk of fraud.

1. The Root of the Problem

Before you can optimize fraud prevention, it is essential to identify any weaknesses in existing accounting procedures.

Separation of Duties. When your accounting staff is limited in size, it can be tempting to delegate conflicting duties to the same individual. No matter how trustworthy this person may be, it leaves a weak spot in your internal controls that begs to be exploited.

Bank Reconciliations. Use QuickBooks to preform a bank reconciliation of every bank account once per month. The generated report will alert you of any discrepancies, which should be immediately reviewed and resolved. Consistently inaccurate bank reconciliation is usually just an indication of lousy bookkeeping, but it may also be a symptom of employee theft.

Customer and Vendor Accounts. Without the proper internal controls, an employee can simply create a false vendor account and send payments to his or her personal bank account. There are many cases where this type of fraud goes undetected within a company for years, most often by a highly trusted employee.

2. Get Familiar with the Activity Log Report

The activity log serves as your personal audit trail in QuickBooks and is the first step towards detecting fraudulent behavior. An activity log report will provide you with every activity that has taken place, including the creation, modification, and deletion of each transaction. In particular, look for duplicate payments going to the same account and accounts that have been excessively modified by the same person.

Follow this path to review the QuickBooks activity log: Company Menu >> Activity Log. From here, you can filter activity by a specific user, account, or date range.

3. Manage Employee Permissions in QuickBooks

Ultimately, the strongest internal control for a small business is to maintain a strict separation of duties within QuickBooks. For example, you would never want the employee working at the cash register to also be responsible for entering cash deposits into QuickBooks and/or depositing the funds into your bank account. Obviously, this would give the employee full control over the receipt and recording of your hard earned cash, making theft easy to hide.

Follow this path to update QuickBooks permissions: Company Menu >> Set up Users and Passwords >>Set up Users. From here, simply choose the permission you want to alter.

4. Run a Vendor Contact List Report

If you haven’t done so already, it is essential to separate duties involving vendor payments. For example, you should assign one staff member to record vendor purchase orders in QuickBooks, while a second staff member is responsible submitting the payments through your actual bank account. If you suspect any crooked activity with vendor accounts, the vendor contact list will help you identify them.

Follow this path to review your Vendor Contact List: Vendors >> Vendor Contact List. The report can be filtered by date and transaction types to help you quickly identify unexpected activity. Keep your eyes peeled for vendor accounts that lack complete contact details.

Keeping your company safe from employee fraud often boils down to simple common sense. Strong communication with your employees and diligent audits of their activities will ensure your assets remain safe. Following the simple procedures outlined in this article will make it extremely difficult for rogue employees to penetrate your internal controls.