Fraud Statistics from the Report to the Nations

Fraud Statistics from the Report to the Nations

Bank Executive Warns Against Bookkeeper FraudGreetings!


I spend a lot of time on the road and for much of that time I’m listening to the radio. One morning on the South Carolina Business Review, Mike Switzer hosted an interview with a local bank executive who warned small to medium-sized companies of a rise that he saw in bookkeeper fraud. My ears snapped to attention.

Travis Torcoletti is the Branch Team Leader at Regions Bank in Columbia, SC. Why would a bank care about bookkeeper fraud? Because about 61% of the bank’s small business clients had been victims, not by cyber-hackers, but by a friendly, “trustworthy” bookkeeper and they never saw it coming. Some were even family members. Many used on-line bookkeeping such as QuickBooks, for their bill pay procedures, but online processes still use people who can find ways to circumvent the system.

In his experience, Torcoletti found that bookkeeper fraud often goes undetected for an average of 18 months and the average loss was $20k (about 5% of most company’s annual revenue).

Unfortunately, losses aren’t covered by insurance when the fraud is internal. So I’m looking at Bookkeeper Fraud this month.

Aaron Gilland

DRM, Inc.


Bookkeeper Fraud on the Rise?


Although the businesses Mr. Torcoletti discussed in his interview weren’t necessarily in the timber, you can be certain it also happens in our industry. I have spoken to two consulting foresters who have had long trusted bookkeepers steal from them and I know of another small company that had a large internal fraud.


Sadly, it seems even churches can be hit. A local church in Lugoff, SC, where I live, had a trusted secretary steal $97,000 to support her drug habit. She admitted her guilt when the theft was discovered during an audit and she was not able to provide documents to account for large sums of money. The fraud had occurred over a one-year time span and it was determined she had forged 145 checks.



The perpetrator of the church heist had no prior arrest record. The local Sheriff was quoted as saying, “It is important to trust those in charge of church funds, but it is imperative that a system be put in place to verify how those funds are accounted for in order to keep everyone honest.”




Some Steps to Prevent Bookkeeping Fraud


The “trusted bookkeeper” in a small to medium-sized business generally has a close relationship with the owner/operator and wears many hats within the organization, e.g., accounts payable clerk, payroll clerk, accounts receivable clerk and controller.


So much research shows that the ones who are most


likeable and trusted commit the fraud. Partially, because they have that favor in the organization, they can get away with it.


Here are some simple, no cost suggestions to prevent bookkeeper fraud in the first place:


  1. Don’t sign blank checks. Designate someone other than the person writing the checks to sign them. In fact, manual checks should be removed from the process as much as possible.


  1. Always use a different person for posting payments and receivables than the one who is responsible for catching discrepancies through reconciliations. Stamp payments “for deposit only” immediately when received. Then keep checks and cash in a secure place until they are deposited.


  1. Company credit cards should be billed directly to the employee rather than the company. Employees are required to provide receipts and get authorization for reimbursement. Make sure the commercial bank account doesn’t permit cash withdrawals


or cash back on deposits.


  1. Ensure that the person utilizing a business card is not the same one who reconciles the account.


  1. Review outstanding checks and deposits that have not cleared the bank in a timely manner, generally within 2-3 days. If they sit much longer than that, they may be duplicates.


  1. Use purchase orders for inventory to ensure that they are approved and the quantities received accurately reflect the individual price paid and number of items received.


  1. Conduct periodic inventory counts.


  1. Ensure vendor records are complete and W9’s are requested from all vendors before payments are issued. One person should set up vendors and another should enter vendor bills. Requiring a W9 on file is a great way to prevent “fake vendors” from being created.


  1. Don’t share passwords.


  1. Clearly communicate and demonstrate commitment from the top against fraud.


Know Your Bookkeeper: Some Red Flags


Most bookkeepers are honest. However, in turbulent financial times, the tendency for honest employees to stray into fraudulent activities grows. It’s important to be aware of the signs of a potential theft in order to detect fraud as quickly as possible.


Here are a few warning signs to look for:


  1. Your bookkeeper asks for signature authority on your checks.


  1. Your bookkeeper frequently takes records home to work on, or works in the office when no one is around.


  1. Your bookkeeper seems to resent or get defensive when you or your CPA asks questions.


  1. Your bookkeeper has access to your credit card information and receives mail-order packages at work.


  1. Your bookkeeper or accountant insists on handling activities for which other departments are normally responsible. (For instance, picking up the daily mail, acting as the sole go-between with the company’s financial contacts such as banks, auditors and creditors)


  1. Your bookkeeper continually misfiles important items such as payroll receipts, deposit records, supplier correspondence and estimates.


  1. Your deposits frequently seem too small.


Keep in mind these are red flags only. There can be a perfectly legitimate and reasonable explanations for all of these behaviors. At the same time, they can be indicators of a problem. Failing to look into it can cost you money.



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