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QuickBooks CPA discusses Fraud Deterrents | NC

QuickBooks CPA discusses fraud

Gary Bode, CPA: there is more to fraud prevention than just the accounting software. For a free phone consult, call 399-2705.

Every QuickBooks CPA eventually sees fraud. After all, QuickBooks is an excellent bookkeeping and accounting program with millions of users. Naturally some fraud would be perpetrated with it.

“Most fraud comes from lack of internal controls, not through QuickBooks itself.”
– Gary Bode, QuickBooks CPA and tax accountant

Brilliant minds refined accounting internal controls over centuries of time. No software program completely prevents fraud. Think of QuickBooks as an eight foot chain link fence, on the inside of a bank vault, surrounding your money. Think of internal controls as the bank’s vault. Prudence dictates closing the vault door for primary security. Any determined embezzler can climb the fence once inside the vault. Part of small business accounting is establishing appropriate internal controls.

Incidence of Fraud is Higher in Small Businesses

While the absolute dollar loss is higher in Fortune 500 companies, there is a higher incidence of fraud in the QuickBooks niche. So, when fraud occurs, QuickBooks is more likely to be a part of that scenario. In the past, QuickBooks allowed:

  • Every user access to all the accounting.
  • All transactions to be changed or deleted at will.
  • No method to prevent transaction alteration based on dates.

As we’ll see below, many of these gaps are gone, if and only if QuickBooks is setup properly.

QuickBooks can Detect Fraud

Threat of detection is a deterrent to fraud, in some cases. But detection really depends on how well the QuickBooks CPA watches for it. Post embezzlement detection, and even legal action, probably doesn’t mean financial recovery. Note that employee bonding might help in these instances.

“Obviously, prevention is better than detection.”

The audit trail feature in QuickBooks provides an almost complete report on every transaction. So the QuickBooks CPA can scan this report, looking for modified transactions. But even though the CPA is intimately familiar with the company, and QuickBooks itself, fraud might go undetected. The audit trail, generally, is most helpful once a CPA suspects fraud.

QuickBooks Can Prevent Fraud


Like most small business accounting software, QuickBooks allows users to be set up that have limited and specific access to various components of QuickBooks. Password protected of course. This protects the business in two ways. First, this is like locking the bank vault, it helps prevent unauthorized access. I think most embezzlement just comes from the staff stumbling into areas of opportunity by accident. Second, no single employee should have access to all the areas required to complete fraud. Of course a QuickBooks CPA knows that while collusion between employees is possible, most fraud in small businesses is a solo act. Naturally, employees eventually learn their co-workers user names and passwords inadvertently, so change them regularly.

Closed Accounting Periods

Early QuickBooks editions had no way to close a prior accounting period. Which folks liked, because it was so easy to go back and correct errors. Technically, this isn’t a security feature against fraud: closing the accounting period just protects all the hard accounting and bookkeeping work from being changed. But longer time frames allow an embezzler greater leeway to commit fraud. It’s harder to cover up fraud if it has to be done within a single month or calendar quarter.

Payroll Example

QuickBooks provides truly customizable payroll accounting reports. This helps a QuickBooks CPA ensure each pay period is correct, at least for the information entered into it. But most payroll fraud occurs before it enters Quick Books. Due diligence requires strong internal controls over the entire payroll process, not just the software components. Especially with hourly wages.

An owner often thinks of payroll accounting in terms of net pay. So the bookkeeper can potentially increase the federal and NC income tax with holding on their own paychecks, and still keep the net pay the same.

Prevention and Detection Using QuickBooks Reports and Excel

False Vendor Schemes

Without proper setup, QuickBooks allows carte blanche deletion of invoices, changing document numbers, changing dollar amounts, etc. Again, this is the very reason it became so popular;  mistakes could be easily corrected. Properly setup, QuickBooks does a good job of protection, at the expense of some its flexibility.

QuickBooks reports can be customized and then exported into Excel for sorting. So;

  • Addresses of vendors can be correlated to employee addresses. Many false vendors schemes send payment to the embezzler’s home.
  • Multiple checks to the same vendor on a single date can be spotted.
  • Checks with the same dollar amounts can be spotted.

Again, the QuickBooks CPA has to actually use this feature for it to be helpful.


No small business accounting software is comprehensive enough for management to ignore good old common sense and standard internal controls. In the past QuickBooks offered unheard of flexibility of use but gave up a lot of traditional controls to do it. Today, many of these gaps can be closed with the correct version of QuickBooks and expert setup. And fraud prevention is only one aspect of an accounting package.

QuickBooks believes in you paying for what you get. Higher priced versions offer more sophistication than lower priced ones. Their Enterprise line is pricey but the user access feature discussed above is superb. But maybe not so great on their basic version. The more sophisticated the business, the pricier version of QuickBooks it requires. Once you hit their Premier version, it might pay to see what other industry specific software is available.

QuickBooks Setup

Because QuickBooks is so flexible and generic straight out of the box, personalized expert setup is required.

“I teach Quick Books for Baker College online and have worked with all QB versions since 1994. Who better to setup and train?”

For a free phone consult, please call us (910) 399-2705.

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