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Home / Accounting  / 24 Internal Controls to Prevent Fraud in Your Business

24 Internal Controls to Prevent Fraud in Your Business

When you have one or two people doing your books, it puts your business at a higher risk for fraud and many small businesses don’t know how to navigate this issue. In this situation, trust simply isn’t enough. You may not have the money available to hire a controller, and it’s unlikely that you have the time to double-check your bookkeeper’s work, but best practices like separation of duties and setting up internal controls are crucial when it comes to reducing the risk of fraud in your business. 


Many businesses choose to outsource their accounting to reduce the risk of fraud. Having a dedicated team like the professionals at Solve as your outsourced, full-service bookkeeping department – along with written processes and procedures – can give you peace of mind so that you don’t have to worry about fraud. But, if you’re not ready to outsource just yet, we’ve provided a checklist of internal controls to help reduce your risk of business fraud. 


24 Internal Controls To Help Reduce Your Risk of Business Fraud
  1. Use your employee manual to clearly define what constitutes fraud.
  2. For Retail businesses, establish a system of reconciling your daily takings of cash, credit cards and cheques to the till system.
  3. Make sure you’re performing monthly bank reconciliations. This should not be done by the person who writes the cheques.
  4. Regularly review your debtors’ reports. This should not be done by the person who does the invoicing.
  5. Use the “view-only” option in your accounting software and set user permissions to limit access for people who enter the bills.
  6. Never let anyone use the Admin password in your accounting software.
  7. Each user should have their own password within your accounting package and emphasize the importance of not sharing passwords.
  8. Implement an expense and reimbursement policy. Establish what is acceptable and what is not.
  9. Use a credit card to track business expenses and be sure to replace it yearly. If an employee leaves, cancel immediately.
  10. Ensure that your outstanding lodgements are reconciled regularly.
  11. Review any outstanding cheques and deposits and make sure you write off anything that isn’t going to happen.
  12. Before any cheques are issued, make sure that every cheque is authorised.
  13. Limit the use of manual cheques and make sure to properly lock up your cheque book.
  14. If possible, avoid writing cheques altogether. Try to Use a billing solution that integrates with your accounting package.
  15. If you must use your own bank’s bill payment, use a secure service to link scanned images of every transaction to each transaction in your accounting package. This way you know what’s getting paid.
  16. Set a closing date and password. Even if you give it to the bookkeeper, all prior period changes will now be tracked.
  17. Use an audit trail report and filter it for critical transactions such as deleted invoices, credits, changed disbursements.
  18. Calculate the sales commission on cash received not billed.
  19. Use purchase orders for approval of large amounts and get approvals on all Purchase Orders.
  20. Implement a physical stock count periodically and reconcile it with the accounting system balance.
  21. Ensure that every supplier record is complete.
  22. Reconcile your petty cash.
  23. Prepare a monthly account. Be sure to review how much cash you have and your balances for what customers owe and what you owe your suppliers.
  24. Perform a physical count of fixed assets.


As a final tip, make sure that the external accountant user in your accounting package is only used for the accountant. There are tools available to that user that only your accountant or dedicated outsourced accounting team should be using.


If you can’t separate duties between two people, make sure to use an outsourced service to do the bank reconciliation and check the audit trail report. Just the idea that someone is double-checking your trusted employee is enough to help deter theft. No system of internal controls will prevent all theft, but without proper separation of duties, your risk goes way up.


If you’re ready to make the jump to an outsourced accounting team, give the professionals at Solve a call. We can start you off with a free business review to review areas such as businesses financials, processes, staffing and reporting. There is no obligation and we gain in another business learning about Solve and what we do for our clients.

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