One important step for fraud prevention is for owners to watch the business financials to identify changes in the income/expenses. This is easily done by looking at a couple of simple reports found in most accounting software packages, such as QuickBooks or NetSuite.
In QuickBooks, these reports are found in the Reporting Center or under the Reporting > Company & Financials tab. A simple way to watch for unexpected financial transactions is to adjust reports to cover a 12-month period and to display by Month. This report is also very helpful to notice if financial transactions are being overlooked by mistake.
“Profit & Loss” or “Income Statement”
This report shows the income and expenses for a company. By looking at the rise/fall of income and expenses over multiple months, an owner can notice that:
- Deposits haven’t been happening
- Salaries have been adjusted
- Expense categories seem unreasonably high for any given month
- Utilities or Rent aren’t being paid or are being paid twice (could be payment to employee, but categorized as utility)
“Balance Sheet”
This report shows the assets and liabilities for a company. By looking at the rise/fall of assets and liabilities over multiple months, an owner can notice that:
- Payroll taxes, Sales tax, or loans aren’t being paid, or are being paid twice
- Credit card liabilities are increasing or are unusually high
- Receivables or Payables are not moving as expected
- Inventory has reduced more than expected or physical inventory doesn’t match the books, indicating theft.
By viewing this information directly in your accounting software, rather than looking at paper reports, any questionable numbers can simply be double-clicked for all the details.
It is also a good example and deterrent to the office staff that the owner is actively involved in looking at the books.
Other important accounts for an owner to continually look at would be:
- Credit Card accounts
- Bank Statements
- Business Amazon accounts, to see if personal items are being included with other business supplies
- State Comptroller Sales Tax Account – to verify that Sales Tax reports are being filed and Sales Tax payments are being received by the state
Finally, an owner should periodically be seen collecting and reviewing the incoming mail for unrecognized credit card, loan, or past due statements.
Owners that are actively involved in the financials of their company help reduce fraud/theft and also have better information to strategically direct their business.