Experts say the difference between errors and fraud is a question of intent.  When it’s your money, does it really matter?

Accounting errors and fraud are serious issues for all businesses, but they are especially challenging for small companies where cash is always a top concern.  Errors and fraud undermine decision making, lead to financial losses and in some cases even force companies to lay off staff or shut their doors.  Unfortunately, both accounting errors and fraud are common problems for small businesses.

Research by the Association of Certified Fraud Examiners (ACFE) shows that more than 30% of all fraud occurs in small companies.  A startling fact considering that the estimated fraud losses for businesses of all sizes was nearly $2.9 trillion in 2009.  Small companies pay a high price when it comes to fraud.  The ACFE research found that the median fraud loss for a small business was $150,000.  Despite the severity, very little has been done to help small businesses proactively address the problem.  As a result, in the majority of the cases investigated by the ACFE, the fraud was discovered accidentally or via a tip from someone outside the company.

In some small businesses, the risk of fraud is low or even non-existent.  Still, accounting errors can potentially be a big problem.  One small mistake in recording a payment from a customer can lead to underpaid sales taxes ultimately resulting in unnecessary penalties and interest charges.  Recent research by Indiana University showed that 60% of accounting errors result from “simple bookkeeping mistakes or misapplication of easily understood accounting standards”.

So why do errors and fraud occur so frequently in small businesses?  A common reason is that small companies typically have small or even single-person accounting staffs and limited internal controls.  When the bookkeeper is also the office manager and receiving clerk, problems can arise if for no other reason than the fact that no one double checks the work.  Besides being more susceptible to errors and fraud, small businesses are also less likely to discover them since financial audits are almost never performed.

Comprehensive analysis of small business accounting data can help to identify errors or possible fraud, much like anti-virus technologies are used to protect your computer from attack.  Intuit App Center products like AuditMyBooks automatically assess every accounting transaction in a matter of minutes to identify errors and possible fraud.   Use this valuable information to quickly assess QuickBooks data before bidding on new clients or to identify new projects with existing clients.  The sooner these issues are discovered, the sooner corrective action can be taken.

As with protecting computers from viruses, analysis of financial data to detect irregularities should happen on a routine basis.  Subscription-based applications like AuditMyBooks give you the flexibility to perform regular reviews.  The added diligence of even a monthly scan of your client’s QuickBooks data reduces the chances that accounting errors or fraud harm their business, ultimately helping them to stay focused on growth and financial success.

Interested in scanning your data?… check out our free trial today.

-CP Morey