subject: Professional Bookkeeping Processes Reduce Risk Of Fraud [print this page] Effective financial administration of companies is critical not only to meet taxation and management reporting requirements, but also as a safety mechanism to detect and prevent fraud.
In their 2003 paper "Identifying and Responding to Risks of Serious Fraud in Australia and New Zealand" the Australian Institute of Criminology and PriceWaterhouseCoopers identified a number of 'anomalous circumstances that give rise to the commission of serious fraud and its discovery'. Poor cheque control procedures were a significant factor.
Cheque requisition forms (and their equivalent for electronic payment processes) provide essential documentation to validate payments and create an audit trail which is difficult to avoid. Frequently, even though two signatures are required for a cheque, a fraudulent employee who is an authorised signatory may obtain the signature of a second signatory without suitable validation of the purpose of the cheque, sometimes even for blank cheques. Without a suitable documentation trail such as a cheque requisition form, and procedures for confirming the details written on cheque butt, this can be abused for an individual to obtain funds deceptively.
The PwC/AIC study discovered that the mean period of fraudulent activity was 2 years, with a further 10 months transpiring before detection - and frequently this discovery only came about as a result of an external company reporting the anomaly.
When engaging a bookkeeper, or indeed any administrative assistance to work with the finances of your company, it is essential that you select professionals of integrity, and together develop suitable processes and safety mechanisms that ensure compliance and detection of any irregularities in the administration of your finances and company.
Another key element of fraud minimisation is the screening of new employees and contractors. Stringent checks of references and past employment history have been shown to lower the risk of fraud. I recommend that all staff working within financial matters within your company should have a police check in addition to the normal reference checks that should always be performed.
Another valuable protection can be the segregation of tasks. If a company is large enough to have an administrative team, separating out functions like purchasing from accounts payable has significant benefit in minimising the risk of fraud.
Document storage and management poses another risk. The value of suitable administrative processes and security for personal identity documents cannot be underestimated. The same principle applies electronically as in the physical realm - even in small computer networks, it is not a difficult matter with modern technology to secure important files and restrict their access to only those people who need to access them in the course of their regular duties.
Finally, poor or non-existent internal audit procedures provide an opportunity for miscreant activities to go undetected for extended periods of time. In a small business, audit may be performed periodically by the owner/directors, or they may engage an external company to assist with an annual audit.
In June 2003 Standards Australia published a new standard, AS8001 Fraud and Corruption Control, which provides useful information to both private and public sector organisations on the implementation of fraud and corruption control programs.
