Making the Grade with your Small Business Risk Assessment

Making the Grade with your Small Business Risk Assessment

Are your books messy because of incompetence, or are they deliberately messy due to an employee covering up a fraud scheme?

If your business books are incomplete, messy or unorganized, your business has a higher risk for employee embezzlement.

So, how would you know the difference?  If you were constantly involved in your books, the mess would never be allowed to get out of control.  It is however, difficult to tell the difference between a bookkeeper’s messy accounting and fraud because a lot of fraudsters use the messy bookkeeping trick to cover up their fraud scheme.

Preparing a fraud risk assessment and creating a simple internal control system will help you tighten up your business bookkeeping and financial records.  This will also help your business become more financially sound and profitably because you are now looking at all aspects of your income, expenses and balance sheet accounts.

A simple checklist to see if your books are messy;

  • Un-filed records
  • Un-opened mail
  • Vendor invoices shoved in drawers
  • Vendor statements with past due notices
  • Tax notices
  • Customer / client payments not recorded or photocopied
  • Computer records difficult to navigate
  • Un-reconciled bank and credit accounts
  • Financial reports that don’t make sense
  • Journal entries that force balancing
  • Lack of financial reports
  • Always late filing taxes

A very good test to determine the accuracy and skill of your accounting and bookkeeping staff, is by evaluating the amount of adjusting journal entries your CPA makes at the end of the year to correct mistakes. If your CPA is spending a lot of time making adjustments at the end of the year that aren’t in the normal scope of a tax return, your books are not clean.

To give you a better idea of what some of the differences would be between bookkeeping incompetence and fraud are;


  • Messy accounting and filing
  • Poor reporting habits
  • Poor training
  • Remorseful behavior

Malicious Fraud

  • Messy accounting and filing
  • Lack of cooperation / excuses for reports
  • Deliberate
  • Unusual entries and paperwork
  • Change in behavior
  • Resentful or revengeful behavior
  • Secretive

If you have a bookkeeper who is inexperienced and it shows in your business records, you should consider replacing them with someone more qualified or have them take training classes to teach them the proper way.  You can also have your bookkeeper become certified.  Providing your bookkeeper with a membership and certification in bookkeeping will help them become more efficient with their work habits and will help your business.

If by chance your bookkeeper falls under the other category, start reviewing your records immediately.  If you continue to ask for records and reports and they are not cooperating, this would be a huge red flag and time to investigate your books.  Don’t avoid the warning signs.  Fraud is a very costly problem with the average fraud loss of $150,000 per fraud occurrence lasting over 18 month.  The more pro-active you are with your business, the less likely you will be a victim.

Please download our free small business risk assessment form today and start reviewing your fraud risks.

Julie Aydlott, CFE

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