CASE STUDY: 4 Steps to Finding Financial Fraud in a Small Business

Uncovering Fraud

Lately, one of our longest-standing clients had an incident of fraud. This was shocking to us, as we have done varying business management projects with them since 2008, and they even have back office systems for fraud prevention!

The fraud was discovered just as one office manager left, and the replacement employee found all the stuff that got buried. The back office systems we set up in 2008 were great, and would have found the fraud right away, but the managers weren’t following the systems.

Detecting Fraud and Preventing Future Fraud

Fortunately, our business management consultant team was there to help.  Here are some ways this 12-employee construction company could have found the problem in month 1, instead of finding it after month 7:

1. Run periodic Quickbooks reports (memorized reports)

In past projects, we set up business management systems, and then hired their office staff to replace family.  We then set up Quickbooks reports to be run each week or each month.  When we audited the construction company’s business management systems, it was discovered that the fraud didn’t start until after the reports were no longer being run.

2. Have Owner Oversight Meetings

Quickbooks reports were always part of the agenda for the Owners’ meeting.  Along with the fraud, cash problems, lack of money, and conflict amongst family all increased at the same time. Even when times are tight, you can save money and hassle by having the Owner’s Oversight meeting to do the work of business management.

3. Let Incompetent Employees GO!

Like most of our clients, the owners of this company are *really* nice. We love them that way!  They forgive easily and repetitively, expect that any work problems are management problems, and overall just want to help each employee family in the business provide for themselves.  However, at work, business comes first. If you have an employee with big attendance problems, work production problems, competency issues, or if you wish an employee could just do their job, you need to remember: Business first.

4. Reconcile your bank accounts

When the new Office Manager came back, she found all this fraud through reconciliation of the bank accounts. Check numbers were missing from Quickbooks. She also found in Quickbooks that Home Depot spending had tripled, and owner disbursement accounts had skyrocketed.  The owners were shocked! These are all places that the books were “cooked” to cover the fraud.

Need Help with Fraud Detection and Prevention?

If you’re wondering how you can make time to do all this, consider hiring a outsourced business management consultant.  Business Management Consulting Firms like ours can go in, set up systems, and then sunset out… And come back in when concerns like this rise up.  We’re here to help when you want a deeper team in your small business.

–by Barb Fisher, Owner and Business Management Consultant, Fisher Business Management

About the Author Barb Fisher

Barb is the CEO of Fisher Bookkeeping, an outsourced bookkeeping consultancy that provides small businesses with a full-service financial department. Her favorite aspect of work is to break down the accounting to meaningful bits, so entrepreneurs can make a powerful difference in their own business. She's also a power lifter (squat: 215, DL: 270).

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