Employee Fraud, Accounts Payable, Double-Entry Bookkeeping and the Father of Accounting
Recently someone asked me why accountants use “two-sided” entries? It really is simple, but it requires some history. When Luca Pacioli, “The Father of Accounting,” wrote his foundational book on double-entry bookkeeping 5 centuries ago, his theory was that these “balanced” transactions would serve as a proof of accuracy. We call this debits and credits within the accounting equation, assets = liabilities + equity. The accounting equation serves as a kind of error-detection system: if, at any point, the sum of debits does not equal the corresponding sum of credits, then an error has occurred.
- Examine suspicious transactions including, but not limited to, weekend, evening, and holiday transactions. This can be done routinely and easily via a data mining tool. A fraudster will regularly use off hours to perform their dirty work.
- Keep a careful eye on any unusual general ledger accounts to which your accounts payable system is posting. Usually fraud can be present when the offsetting entry for a customer payment is going against another account other then decreasing accounts receivable.
- Management should perform random checks on purchases. Did you receive everything you ordered? Is the employee taking the product home with them or is there some kind of kickback? Your policies and procedures should prevent this unless collusion between employees is present. In that case, random checks by management will help catch or deter the fraud.