Bookkeepers and How to Minimise Your Chances of Fraud

Over the years we have come across many instances of fraud, however in the last couple of months there seems to have been an increase in good bookkeepers turning bad!

Many business owners rely on their bookkeeper to help them run their business.  Bookkeepers are in a position where they are highly trusted, have access to lots of confidential information and in most situations access to the money of the business. A good bookkeeper who is honest and does their job well is crucial in helping prevent or at least minimise the chances of fraud. Having the rights checks and balances in place is also crucial to make sure your bookkeeper is doing a good job. 

According to the Association of Certified Fraud Examiners, small businesses report 31.8% of all instances of fraud.  The average fraudster is someone who has been with the business for 4 to 5 years and nine out of ten of these people are first time offenders. Not all offenders were bookkeepers but by having a good bookkeeper and being proactive as a business owner and leader, you can minimise the chances of fraud happening to you and your business.

Factors That Lead to Fraud Include:

  • Rationalisation, the person feels that they are not rewarded appropriately for the work they do and feel like they deserve it. Sometimes it can be as simple as the person thinking they will just “borrow” the money on a temporary basis.
  • Opportunity, with poor processes and procedures and lack of checks and balances sometimes it is just too easy for someone to commit fraud.
  • Pressure, a change in personal circumstances, addictions or being coerced by others to do the wrong thing.

What You Can Do to Minimise The Risk of Fraud

1.       Recruit Right

Having a good recruitment policy is very important.  This not only includes a well-defined position description but also being very clear on what you expect your bookkeeper to do on a daily, weekly, fortnightly, monthly, quarterly and annual basis. You can then create a checklist that includes specific dates when tasks need to be completed, for example BAS and Super payments. Many people don’t know what their bookkeeper does other than make payments, issue invoices and generate reports!

As part of your recruitment process include police checks, having a clear code of conduct, documented policies and procedures and very importantly doing proper reference checks.  Speaking to the actual business owner is preferable.  We are aware of an instance where a bookkeeper who was not doing the right thing gave other previous employees, who worked with her and collaborated with her, as references.

2.       Segregation of Duties

It can be very tempting to have one person do everything because it’s deemed to be more efficient.  It may be efficient, but you’re creating the opportunity for fraud to occur. Don’t let one employee do all the accounting and bookkeeping.

A simple control used in the past meant that the person who opened the mail would not be the same person that entered the data or paid the bill.  The challenge today is that most of the mail arrives via e-mail.  Any e-mails that get sent to your accounts department should also be forwarded to a separate account that you can check.  It’s worth speaking to your IT person to set this up. Registered letters and letters of demand still arrive via mail and having an independent person collect and sort the mail is still important.

The person responsible for paying the bills should not also be able to set up new accounts. In the days of cheques this often required a second signatory.  Often in businesses a pay run is created and then a second person makes the payments after double checking it is correct.

3.       Regular Reconciliation and Reviewing

Bookkeeping software has become more user friendly and efficient; having good up to date, legitimate software is important.  Most software has audit logs and trails.  Make sure that these are activated and have not been disabled.  Each person who works on the programme must have their own login and password. Invest a couple of hours of your time and learn the basics so you can login, get basic reports and be able to do a couple of checks.

Every month you want to have a full bank reconciliation that you go through.  Check that it has been reconciled accurately.  Randomly select a few payments that have been made and check these against invoices that you have received.  The same applies for money that has come in, check these against the invoices that have been issued. While you’re looking at the bank account, review credit card payments, this is also a good opportunity to check that regular payments have been made; this can include insurance, rent and wages. Beware of double payments, this is where the same invoice is paid twice, once to the actual supplier and once to someone else!

Check overtime, accrued leave and paid entitlements.  Cross check these with timesheets. 

Refunds and product returns are also an easy way for someone to steal from you.  Have a clear policy on how these should be handled and check that these products have been returned. 

4.       Physical Checks

In the current day of technology, it’s easy to neglect the obvious.  For example, can you see it, can you touch it, have you spoken to someone?

Examples of this include checking that what you have ordered and paid for is delivered.  We were working with a business where they were ordering and paying for a pallet but only receiving a packet!  It ended up that there were a couple of people involved in the scam, all of whom lost their jobs!

Regular stock checks are important, they can be time consuming, however spot checks can often highlight potential problems.

Being aware of where your company’s assets are and how they’re being used is important.  It’s easier than ever before to be able to track your vehicles, it also helps you run a more efficient business. 

Petty cash should be kept to a minimum; small amounts that are reconciled regularly are better.  Go and count the petty cash, go on just do it. Random checks are important, we are creatures of habit and this makes us predictable and easy to fool.  The same applies to checking till balances.  A till that has more money in it than it should is a red flag.  The potential fraudster keeps track of what they are not putting through the till, in the till!

Speaking to people, yes that’s right, pick up the phone and speak to a couple of your suppliers and customers.  Not only does it show you care but it also creates the opportunity for them to let you know if they have any problems.  Speak to your staff and let them know that they can approach you if they have a problem that they feel can’t be resolved by their manager. 

Warning Signs and Signals 

If your bookkeeper never takes leave, this is a big warning sign, most likely they are worried that in their absence someone else will find out what is going on.  Another sign occurs when your bookkeeper keeps on wanting to take on more and more responsibilities making them indispensable to the business and thus backing up their reason for not taking leave or why filing hasn’t been done.  This can also often lead to them needing to take work home. All the above is often seen as a sign of commitment to the business, however this is not always the case.  As mentioned earlier it also helps the bookkeeper justify that what they have done is not wrong because they are doing so much more than what is expected.

Misfiled paper work and not being able to find paper work may also be a sign that your bookkeeper is not doing what they need to be doing. 

Aggressive behavior, becoming defensive or making themselves unapproachable to other staff should also be a concern.

Phone calls during business hours, either to their mobile phone or even the business phone, where people are chasing them for money.  This can also be linked to a change in personal circumstances or addictive behaviours like gambling, drinking or drugs.  Sometimes it can be obvious that they are living well above their means.

What To Do If You Think There Is Fraud

The most important thing to remember when it comes to such an emotionally charged problem like fraud is that a rushed judgement about what might have happened will always cause more trouble than is needed.

The second most important thing to remember is that you will substantially improve your chances of identifying, catching and remedying fraud by taking proper, measured steps.

It’s also the step that most employers skip, which lands them in legal trouble later.

A couple of months ago a business owner saw on CCTV an employee take product from a store room and put the item in his car.  The business owner ran to the store room, fronted the employee (loudly) and then sacked the employee on the spot. 

What that owner should have done is calmly approached the employee and asked what the employee was doing.  The employee would have told the employer that his supervisor asked him to drop the item off to a customer as it was on his way home.  The owner could have checked with the supervisor to verify the employee’s version of events and resolved the matter.

Instead the owner ended up with a hefty legal bill, a loss in the industrial commission, compensation to the employee and even more damaging, the loss of confidence of the rest of the staff who started to question their trust in their boss.

Being hasty might feel good, initially, but it prevents you from checking that you are making the right decisions and protecting your organisation from future claims.

With this in mind, the first step for you to take if you suspect fraud is to do a mini investigation.  This is a fact-finding mission to help you test your assumptions and conclusions. The key is that you stay open minded, and know that you can’t make any decision until you have gathered the facts and offered the opportunity for your employee to tell you their side of the story.  

Gathering information (evidence) can be done discretely, for example asking your accountant or an independent bookkeeper to review your accounts.  You can also start to ask questions with the purpose of trying to understand.  By doing this you will get a better response than if you ask questions trying to catch someone out.  Remember it is your right to be able to ask questions and understand what is going on in the business.

The test that we apply to a mini investigation to determine whether an employee’s actions constitutes fraud is:

  1. Is the employee’s action dishonest/ deceiving?
  2. Is there an actual or potential financial loss?

Once the mini investigation is completed you will have a better and more objective understanding of what has occurred. With this quality information at hand, the next step is to get the right advisors to help you.  At this stage, it’s all about how to best protect your business and how to take the right action against the employee. 

Following a proper process and creating a solid paper trail will help you immeasurably if an employee makes a claim against you.

Don’t wait for something to happen before you act. The most effective fraud prevention action is to undertake a risk assessment of the way your business currently operates. It doesn’t have to be overly involved, but it does require some critical thought about potential fraud opportunities.  

Once you’ve done the analysis you can then move on to introduce strategies to minimise or eliminate the risk. 

Many employers worry about raising sensitive concerns they have with their staff or their service providers for fear of how the other person might react.  The most effective bit of advice I can offer you is to adopt this mantra into your leadership style: trust but verify.  When your staff understand that you trust them but will seek to verify, then they know the rules of the game and won’t create stories about why you are asking questions about how they are doing their jobs. 


As business owners and leaders, we have a responsibility to run sustainable and viable businesses. We provide employment to people who depend upon us, who in turn have people that depend on them.  Fraud can destroy a business and have massive ramifications for not only you but also many others.  Be pro-active and make it your business to know what’s going on.

After reading this article what are you going to do today to get started?

We would love to hear from you about how this information has helped you or if you have other tactics or strategies that help you to minimise the risk of fraud in your business.


Written by Sam Harrop & Andrea Tunjic


Andrea Tunjic is the Director of People Strong, BA, CAHRI.  Andrea has over 20 years experience in strategic human resources and people leadership.

Through People Strong, Andrea works primarily on the areas of leadership development, culture change, strategic human resources and solving people management issues.

Prior to starting People Strong, Andrea worked as the Manager of People and Performance at the Civil Aviation Safety Authority and has continued to provide consulting support to that organization.   

Andrea regularly runs public and private workshops, presents keynote speeches in her capacity as a professional speaker and provides pro bono professional coaching for community projects. 

Andrea collaborates with other private firms and provides specialist HR advice and business advice.

Andrea’s work has been recognized as the Winner of the Small Business Woman of the Year in 2015 through the CBWC.