Every year in Australia businesses lose millions of dollars to fraudulent activity. Sometimes the perpetrator is unknown to the business and uses sophisticated technology to extract funds.
In many cases the fraud is committed by a staff member who is operating right under the owner’s nose. Often the fraud occurs over a long period of time before it is detected, if it is detected at all.
The good news is that you don’t need to hire an expensive SWAT team to rifle through your books and audit every transaction. There are some reasonably simple and low cost measures you can implement to reduce the risk of fraud.
Online accounting systems contain underutilised features that can help time-poor business owners.
1. Separate Critical Functions
Certain key functions should be separated and performed by different staff. If they are not separated from general usage then fraud becomes easier to commit. If you are a really small business, granted this can be a challenge to achieve.
The most common separation is that of bank reconciliation from bank payments. An equally critical task to separate (which many small businesses don’t) is the setting up and editing of bank account details for suppliers and employees.
So let’s focus on bank details for suppliers:
- A couple of weeks ago Xero slipped in a new feature allowing you to select whether a user can have permission to edit bank data for suppliers and customers, making it easier to lock out users from this task.
- Gruntier online accounting software such as JCurve (on the Netsuite cloud ERP platform) also has isolated user permissions for supplier information. JCurve adds more features such as credit limits for suppliers.
- Almost all online accounting software gives you the ability to track actions by user with easy-to-read history reports – handy when the size of your business restricts you from segregating duties in the most optimal way.
Keep in mind you’ll still need to be comfortable that the person with permission to set up supplier bank details gets the information reliably from the supplier. A case came across our desks recently where a fraudster edited bank details on many invoices!
2. Automate Bank Reconciliation Reports
You’d be forgiven for feeling confused by this topic before we get started. Accountants use the word ‘reconcile’ often and it can mean different things under different circumstances.
Essentially, it’s the process of matching one set of records to another and making sure you understand the variances. Let’s assume your bookkeeper tells you he/she has reconciled the bank account. To some bookkeepers this means they’ve correctly allocated bank statement items into the ledger. But is this enough? Certainly not.
A vital control in any business is to understand variances between your bank statement and accounting ledger (profit & loss statement and balance sheet). A business needs to include items in your ledger that may not be reflected in your bank statement. This is typically achieved by the preparation of a bank reconciliation report.
Surprisingly, many businesses do not run such reports. They may have been put off by the administration time involved in its preparation.
Online accounting systems have now made this process instant and pain-free.
- Full bank reconciliation reports can be run at the click of a button.
- Exception reports are available identifying unusual transactions such as imported bank statement lines that have been deleted by users.
3. Review Your Numbers
Reviewing your profit & loss and balance sheet on a regular basis might seem like such a high-level approach that it’s unlikely to help you identify issues. Not so. It’s a vital part of your tool-kit. ‘Analytical review’ is a commonly used technique by auditors to identify unexpected trends warranting further investigation.
If your accounting data is on a computer back at the office, with paper filed on the shelf, this doesn’t sound like a task you’d be rushing to do on a frequent basis, right?
So how does online accounting make this fast and easy to do?
- Use any device connected to the internet to simply click into a transaction and see pictures of receipts, contracts and bills within seconds.
- Speed up document scanning with low cost software that takes pictures of your invoices. A short time later your bill data, with document attached, lands in your online accounting file. Nice.
4. Control Time Theft
It’s common to think about theft in terms of something tangible like cash, stock or a fixed asset. A trickier fraud concept for some business owners is theft of time by employees.
Time theft occurs when an employer pays for work that an employee has not done, or for the time the employee has not put into work. Identifying and rectifying even severe cases of time theft can be difficult if your processes are manual.
Research has shown that time theft costs Australian businesses in excess of $12 billion annually.
Low-cost time and attendance apps such as Tanda integrate nicely with online accounting systems. They capture a picture of staff at clock off and on times and ensure that only logged time integrates to the payroll section of the accounting system.
5. Approval Supplier Invoices
Don’t assume your accountant or bookkeeper has an intimate understanding of the legitimacy of the charges on bills from suppliers.
Supplier invoices should be approved by a staff person who is familiar with your operations and understands what was ordered.
With online accounting, approvals can be carried out on the run without needing to go to the office. User profiles can restrict access to invoice and bill approval only.
No owner likes to think they can’t trust their team but this is time to be personality agnostic. Take a balanced view of managing the performance of your business and safeguard your assets.
If you’re currently using online accounting, take a brief moment to think how you can make a few low-cost changes that can substantially reduce your fraud risk.
If you’re not on online accounting, maybe it’s time.
Jane Meinert is a director of Base Ten Advisory, a Melbourne based consultancy that helps simplify and automate businesses with online accounting software. A version of this story first appeared on the Base 10 blog.