Can You Tell the Difference Between Messy Bookkeeping and Fraud?

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How would you know the difference? If you were constantly involved in your books, the mess should be addressed and rectified immediately and never allowed to get out of control. It is difficult to tell the difference between messy accounting and fraud because a lot of fraudsters use the messy accounting trick to cover up their crime. A few indications that your books are a mess and hold a higher fraud risk are;

Un-filed records

Un-opened mail

Vendor invoices shoved in drawers

Customer payments not recorded or photocopied

Computer records difficult to navigate

Bank and credit accounts not reconciled

Financial reports that don’t make sense

Journal entries that force balancing

Another indication to the in-accuracy of your books are the amount of adjusting entries that your CPA needs to make 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 then your books are not clean.

To give you a better idea of what some of the differences would be between accounting 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

If you have a bookkeeper who is inexperienced and it shows in your business records, you should consider replacing them with someone more qualified. I know, it isn’t as easy as it sounds when you happen to like your employee, but even with messy bookkeeping your company is taking a financial risk and possible loss because of it. Consider having your bookkeeper become certified. Providing them with a membership and certification through organizations such as the American Institute of Professional Bookkeepers (AIPB) – will help your bookkeeper become more efficient with their work habits. Helping your employees with additional training and newsletters plus giving them somewhere to go for help will give them a sense of importance and security. The AIPB isn’t that expensive and it would be well worth the investment to your business.

If by chance your bookkeeper falls under the messy category you need to review your records immediately. If you continue to demand reports and data and they are refusing, this would be a good time to investigate the books without your bookkeeper looking over your shoulder. An employee who is committing fraud will generally do everything they can to try to hide what they don’t want you to see. Don’t avoid the warning signs and settle for excuses. As a business you have the right to your records and data and if someone is making excuses you need to take control. Setting up specific accounting controls along with the use of accounting forms requiring your approval will help reduce fraud risks and generate cleaner records.

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