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| Journal Entry Nightmares |
By:
Jamie Hanson |
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When was the last time the small business owner looked at or even questioned a journal entry that was created by their bookkeeper? Whether you (or your client) use QuickBooks®, Peachtree®, MAS90® or other small business accounting software, it is important to document journal entries from creation to posting.
When I conduct a fraud investigation, journal entries are a key place to look for false entries to the accounting system, especially if they are large in number without any back-up explanation. In a perfect accounting world, your bookkeeper or accountant will keep hard files of all journal entries posted.
Those files would include
1. The original journal entry form with the account detail, date, amount and entry information.
2. Back-up documentation to substantiate the entry.
3. Date and signature on the form from the employee who created the journal entry.
4. Approval signature on the form by an authorized supervisor or the owner.
5. A computer report showing the journal entry posting status.
When setting up procedures for in-house journal entries it is important to clarify what types of journal entries specific employees can create. You do not want to give full access of creating bad debt write offs or credit memos for customers or clients from the accounts receivable clerk (or if you only have one bookkeeper). The journal entry can be created by the clerk or bookkeeper, but must be authorized and approved by the owner or controller with the owners review. The journal entry should be provided for approval before it is entered into the books, then reviewed for accuracy.
Employees trying to hide their fraud will post journal entries into accounts that will not raise questions as to the accuracy or legitimacy of the entry. If your bookkeeper is re-classifying a check that was posted to the wrong account, a copy of the original account entry attached to the journal entry would explain why the original entry is moved to another account.
Having a procedure in place will not do anyone any good unless it is followed. Confirming journal entries should be a part of the month end accounting so it does not become out of control. If the bookkeeper or clerk who has authorization to create journal entries follows the procedures in the beginning it will become routine and not such a burden each month.
by: Julie A. Mucha-Aydlott, CFE
Business Fraud Prevention, LLC
Small Business Fraud Prevention Newsletters and fraud cases can be viewed by visiting our website www.businessfraudprevention.org. |
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