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9 Steps for Fraud Prevention: How Entrepreneurs Can Combat Bookkeeper Fraud, Financial Schemes, and Cyber Scams

By July 7, 2023 No Comments

When it comes to your finances, trust is everything. But here’s the thing: fraud can seriously mess things up.

Shockingly, occupational fraud – or when an employee deceives their organization, committing crimes like embezzlement and misleading investors – costs the average organization around 5% of their yearly revenue.

And you know what’s even worse? This type of fraud often flies under the radar for at least 12 months before being detected, causing an average loss of $8,300 per month.

So, what are we talking about here?

We’re going to focus on few types of occupational fraud that impact your books and your security – bookkeeper fraud, financial statement fraud, and cyber fraud. These sneaky schemes can really hit entrepreneurs hard.

Let’s look at a few more statistics from the Association of Certified Fraud Examiners (ACFE) to get a greater sense of this impact…

– Nearly half of all occupational fraud came from these four departments: operations (15%), accounting (12%), executive/upper management (11%), and sales (11%).

– The median loss per fraud case is $117,000, and the average loss per fraud case is $1,783,000. That’s a whole lotta money to lose.

– Organizations with the fewest employees had the highest median loss at $150,000. We’re looking at you, small business owners and entrepreneurs! This increased threat is due to company size, limited resources, and fewer anti-fraud controls. Not to mention the fact that a startup is significantly less flush, making the impact deeper, more painful, and more threatening to the survival of your business.

– Almost half of occupational fraud cases occurred due to lack of internal controls (29%) or override of existing internal controls (20%). These are the standard practices that businesses use to keep their financial activities accurate and accountable, and prevent fraudulent activity.

Understanding Types of Fraud for Business Owners

Now, let’s get back to talking about some of the types of fraud schemes that you need to be aware of as a business owner:

Financial Statement Fraud

Financial statement fraud is the manipulation and falsification of a company’s financial data in its financial reports.

This type of fraud often happens when someone wants to make it look like your business is doing better than it really is. It could involve making up income, hiding costs, or lying about how much money you owe or how much your assets are worth.

While it’s typically done to make a company’s financial health look better than it actually is, it can lead to serious financial and legal consequences and harm your business’s reputation.

According to the ACFE, financial statement fraud schemes are the least common, sitting at 9% of cases, but they’re the most costly. The median loss from a case of financial statement fraud is $593,000.

Bookkeeper Fraud

Bookkeeper fraud, also known as bookkeeping fraud or accounting fraud, occurs when an employee (often someone managing the company’s books) manipulates accounting records for personal gain.

And there are various ways a bookkeeper goes about stealing money from a company. This could involve skimming off the top, creating fake employees on payroll, fraudulent expense reports, or even outright embezzlement.

Cyber Fraud

With so much business conducted online, cyber fraud is a big risk.

Two common cyber fraud cases are phishing attacks, where scammers trick employees into giving out sensitive info or login credentials, and scams, where you’re fooled into paying fake suppliers.

Phishing attackers often impersonate trusted businesses, like banks or reputable organizations, through fake emails, messages, or websites.

Scammers often try several tactics, like creating fake websites, sending false invoices, or posing as legitimate vendors.

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9 Steps to Reduce Your Risk of Fraud

Regardless of your company size or industry, you should never assume that you’re immune to bookkeeping fraud, financial statement fraud, or cyber fraud. The risk of fraud is real – just look back at the statistics!

That’s where anti-fraud controls come in. The ACFE reported that anti-fraud controls lead to lower fraud losses and quicker fraud detection, which could save you thousands of dollars.

Let’s look at some controls you can implement in your business to reduce the risk of fraud:

1. Set up your credit card and bank account access to “view only” or “bookkeeper access level.”

Put this setting to use for people that don’t need complete access – like your bookkeeper! This helps protect you from bookkeeper fraud by restricting the actions they can take on your accounts.

2. Utilize a password management tool.

Don’t share passwords to your accounts through email, Slack, or another nonsecure platform. We recommend using a password management tool like LastPass to securely share your login information.

Tools like LastPass not only provide an additional layer of security, but they also keep track of who has access to what, which is useful in the case of any suspicious activities.

3. Review your financial records on a consistent basis.

Regardless of who’s managing the books, you as a business owner should make a habit of reviewing your bank statements and credit card statements regularly.

This simple practice can act as a safeguard against bookkeeper fraud, financial statement fraud, and even cyber fraud, helping you to spot any irregularities early on.

4. Familiarize yourself with your bank’s “roles” for online bill pay.

Banks typically have different roles for online bill pay to ensure that each team member has the right level of access. Assign the least privilege necessary to each of your team members to reduce risk and prevent unauthorized transactions.

These roles vary by bank and may include things like payment approver or payment initiator.

5. Regulate who has the ability to sign checks and approve online transactions.

Restricting who can sign checks and OK online transactions helps you keep control of your company funds. Keep this to just a few trusted people – you don’t want blank checks in just anyone’s hands.

6. Routinely check up on your payroll details.

Make it a habit to frequently check your payroll for any unusual activity, a warning sign for potential fraud.

Watch out for unexpected increases in wages, payments to employees who no longer work for you, or to those who never worked for you (also known as “ghost employees”), and excessive overtime charges. Even small, consistent discrepancies shouldn’t be ignored as they might point to an ongoing fraud.

And if you have a bookkeeper or accountant running payroll, make sure they’re not the only ones reviewing payroll. Having a different person check these details can provide an additional layer of control, and further reduce the risk of bookkeeper fraud.

7. Divide financial duties.

In other words, the people who handle bookkeeping and financial record-keeping should be different from the people who approve how money is spent. That way, mistakes or fraud are more likely to get noticed and reported.

8. Conduct regular internal audits.

Find time for consistent internal audits to guard you from bookkeeper fraud and financial statement fraud. These audits dive into your books and financial statements to spot any inconsistencies.

You can do them yourself if you’re confident in accounting, or a financial controller can perform them. Plus, these audits don’t just help you spot fraud early, they highlight areas for improvement in your business.

However, it’s important to note that while audits should occur on a regular basis, you should maintain a level of “surprise” so that potential fraudsters cannot easily anticipate them.

9. Stay up-to-date on the latest cybersecurity threats and phishing scams.

Knowing what to look out for will help you protect your business from cyber attacks and identity theft. Use reliable security software and educate your team about these risks, too, to reduce the risk of falling victim to cyber fraud or scams.

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How to Prevent Bookkeeper Fraud

Of course, since we’re an accounting firm, one of our areas of expertise is bookkeeping! So, our Co-Founder Matthew May made this short video for you about a couple of quick tips for how to prevent bookkeeper fraud:

Acuity’s People, Process, & Technology: Here to Help

At Acuity, we bring together people, processes, and technology to achieve powerful results. Our approach includes strong measures to prevent fraud in accounting and protect the security of your business finances.

We built our bill pay and expense reporting practices to combat bookkeeper fraud.

In order to implement good practices, we recommend these six Acuity tech partners:, Veem, Melio, Expensify, Brex, and Divvy – all best of breed bill pay and expense reporting solutions.

These technologies allow you to take the administrative part off of your plate as a business owner without taking your authority away.

As for our people, we follow a strict hiring process. It includes pre-employment credit checks and background checks for all of our bookkeepers, controllers, tax CPAs, and CFOs.

We also have internal processes and technologies in place to manage our employees, eliminating opportunities to take advantage of your business.

If you’d like to chat with us about how to detect fraud, the internal controls we recommend, or how to put these practices into place, we’re here to help! Book a free consultation with our team and start protecting your business from fraud.

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