A few nights ago I saw a documentary about small business owners who had been defrauded by their bookkeepers. This was a blatant abuse of their positions, where individuals stole hundreds of thousands of pounds.

The methods used by these fraudsters were fairly simple and once you know what you are looking for they are easy to spot and stop.

The main type of fraud is called teeming and lading. Teeming and lading is a bookkeeping fraud which involves stealing customer payments and then allocating other customer’s payments to the ones stolen in order to make the books balance and to hide the shortfall or theft. This can become quite elaborate and complicated. A major sign that this is happening is that bookkeeper never takes holiday – it’s only when bookkeepers take holiday that these frauds can unravel as they are not their to cover their own tracks.

Other ways fraudster can perpetuate their fraud is to falsely create supplier invoices and pay these to themselves.

There are a number of things you can do to prevent this, the main one is to be careful how much power you give individuals in your business.  We are all for delegating but if you do delegate responsibility for making payments including giving others access to your bank account then you are opening yourself up to this type of fraud. It doesn’t mean it’s going to happen but you do need additional controls to make sure that payments are genuine.

You should insist that all payments are signed off by a director before they are made and once they are signed off they are matched to an invoice and that invoice has been authorised by someone else in the business. This way the invoice should be genuine. This doesn’t prevent collusion where two people collude to defraud but it can reduce routine fraud.

How can they can get away with it?

The reasons are:

  1. Fraudsters are in a position of trust and somehow seem to be able to look you in the eye whilst robbing you.
  2. Most small business owners don’t know their own businesses numbers and do not normally insist on getting management accounts each month.
  3. The accountants are too far removed from the day to day numbers and, for one reason or another, aren’t involved sufficiently to help.
  4. The bookkeeping package that most businesses use is flawed as it locked away on the bookkeepers computer and no one else can get access.

So what can you do about this?

  1. Get to know your numbers take ownership so that you can spot any irregularities.
  2. Get an accountant who is actually interested in you, your business and its numbers.
  3. Put in place some controls in your business to make sure you don’t rely on any one individual.
  4. Get Xero it will increase the collaboration between you and your accountant.

If you think you could of been a victim of fraud or just want help to review your internal controls drop me an email will@accsysltd.co.uk or call 01622 671835.