(310) 447-1234

Tel : 310-447-1234

Fax : 310-447-0287

861 Parkview Drive North
Suite 200
El Segundo, CA 90245

ContactUs@bflc.com
Our building is so new that Google does not recognize the address. If you need help finding us, please Click Here
Critical Fraud Prevention Procedures
1) The bank statements should be sent directly to, opened and reviewed by one of the owners before they are handed to the controller/bookkeeper for reconciliation.

This owner should review the statement and cancelled checks carefully to look for any unusual activity (unfamiliar payees, altered checks, etc.). This lets the controller/bookkeeper know that there is someone monitoring his/her work and reduces the risk of altered checks, fictitious suppliers and employees. In addition, the owner should review the bank reconciliation once it is complete to again look for any unusual activity (miscellaneous reconciling items, old checks, etc.).

2) Randomly, two to three times a year, someone else (internal or external) should prepare the bank reconciliation.

They should specifically be looking at the cancelled checks, signatures and endorsements to see that everything is in order.

3) When signing checks, ensure that proper back-up (invoices, purchase orders, authorization, etc.) is attached to the check and the expense/cost is reviewed for reasonability.

4) Once the check is signed, it should be sent out immediately (not returned to the preparer).

Only the invoice package should be returned to the check preparer.

5) Blank and voided checks should be secured in lockbox that can only accessed by authorized personnel.

In addition, authorized personnel (limited) should only order the checks.


If you print the check number on the checks, the blank checks should also have an inventory control number (on the back of the check) and the inventory of checks should be reconciled at the end of the day.

6) Utilize positive pay through your bank.

Positive pay is a process where the company electronically sends the bank the check numbers, payees and related amounts and the bank only cashes checks that match the list.

7) If you receive incoming wire transfers, a non-negotiable incoming wire transfer account should be used.

This account only accepts incoming transactions and money is swept out daily.

8) Prepare a check log for received checks before they are given to the accounts receivable clerk.

The check log should then be compared to the deposit list to make sure that all checks received are deposited to the company's bank account.

9) Prepare annual budgets and compare actual to budgets and analyzing the variances.

You would be surprised how many fraud schemes would be caught if someone had only asked a few questions based on variances in the numbers.

10) Background checks should be performed for all incoming employees and partners.

It is much easier to deal with a problem prior to hiring an individual than it is once they have started with the company.

11) A mandatory vacation policy for all employees should be in place.

In addition, cross train critical duties to ensure that these duties do not stop when an employee is out. All employees should be forced to go on vacation at least once per year. While that employee is off, someone else should fulfill his/her duties.

12) Someone other than the person preparing payroll should receive the paychecks and review and distribute them.

14) If you have company credit cards, someone independent should review the actual statements.

Please note that this list is not intended to be a comprehensive listing of internal controls. It is provided for discussion purposes only. A properly designed, functioning and monitored internal control system should assist in the prevention and/or detection of fraud/embezzlement but is not a guarantee that fraud/embezzlement will not occur.


If you need assistance in the creation, implementation or improvement of your internal controls, please contact Steve Cleland.
Copyright © 2009 All rights reserved.