Use Simple QuickBooks Reports to Detect Fraud

You are a busy (owner-)manager and you don't have time to oversee every transaction. Yet you want to ensure that money is not wasted or stolen. So you set up preventive controls to protect your assets. For example: 

• You sign every cheque.
• Every payment must be supported by valid documents to pay.
• Every document must be counter-checked by a competent person. 

But fraud is still closer than what most people are willing to admit ("I trusted him/her"). A survey by KPMG in 2014 showed two key findings:

• Out of 4 companies, at least 1 had encountered fraud incident(s) over the past two years. 
• Of the companies that experienced fraud, almost 3 cases out 4 were perpetrated by internal staff.

(Source: KPMG-SMU Singapore Fraud Survey Report 2014)

No wonder you go to sleep every night wondering whether you've missed out anything. 

Yes, you have.

​If you ignore simple detective-control reports you can get from your accounting software. What are these?

Preventive vs Detective Controls

First, let's understand the difference between preventive and detective controls. 

Preventive controls aim to prevent errors or fraud. For example, keeping the cheque book under lock and key, and all the measures listed in the opening paragraph above. 

On the other hand, detective controls hope to uncover errors or fraud had they happened. For example, checking the drawer and discovering that the cheque book is lost.

While fraud prevention is important, early fraud detection is necessary to minimise any loss. That's where your reports come in useful.

Remember the moonwalking bear? 

It's easy to miss something you're not looking for.

The Shady Characters

So, let me identify a few shady characters:

The Pickpocket 
a.k.a. skimming

Skimming involves taking cash "off the top" of the daily receipts of a business and reporting a lower total. For example, a customer's payment in cash is pocketed and the sales invoice deleted from the system.

The Forgiver
a.k.a. write-off scheme

Here, instead of deleting the invoice, the fraudster creates an unauthorised credit note to offset the sales invoice.

The Ghost Supplier 
a.k.a. fictitious purchase

Another common way to siphon money off the company is to make payment to a personal account while masquerading it as a normal company purchase. 

Now, what reports can you use in QuickBooks to uncover any such incidents?

Fraud Detection in QuickBooks

You can get the following QuickBooks reports from the standard report menu by just a few clicks:

1. Voided/Deleted Transactions 
2. Sales by Customer Detail (Credit Notes) 
3. Expenses by Vendor Detail
4. Vendor Contact List
5. Closing Date Exception
6. Audit Trail

Let's examine each:

1. Voided/Deleted Transactions
Reports > Accountant and Taxes > Voided/Deleted Transactions Detail

Pay attention to sales transactions that have been deleted or voided.

2. Sales by Customer Detail
​Reports > Sales > Sales By Customer Detail
(Filter Transaction Type: Credit Memo.)

Appoint an independent person to review and approve all credit memos.

3. Expenses by Vendor Detail
Reports > Company & Financial > Expenses by Vendor Detail

Watch out for payments made just below authorisation limits, e.g., acquisition limits, cheque signatory limits. Also, look out for irregularities, e.g., recurring payments to a particular supplier, multiple payments to a supplier in a short period of time.

4. Vendor Contact List
Reports > Vendors & Payables > Vendor Contact List

Check out vendor accounts that lack details. 

5. Closing Date Exception
Reports > Accountant & Taxes > Closing Date Exception Report 
​(You must have already set a closing date under Edit > Preferences : Accounting > Company Preferences.)

Unauthorised changes done after the accounts are closed may indicate cover-ups. Follow up on changes that you find questiinable. 

6. Audit Trail
Reports > Accountant & Taxes > Audit Trail

You can make this report easier to use for yourself by adding/removing columns or changing the date range.