I often get clients ask what is the importance and value behind having management accounts done monthly, quarterly, or even biannually.

There are obvious benefits to any business, such as:

  • Having accurate information to make key business decisions
  • Cashflow planning
  • Budget to actual comparisons to see how the business is tracking
  • Clarity around business performance and profitability

Now let me give you another increasingly common reason…….fraud prevention.

If you’re not looking at your management accounts on a regular basis, then you could be exposing your business to potential fraud.

I’ve seen several examples of this in the last 6 months and what used to be a rarity is sadly becoming more commonplace.

An existing client let me know about his friend’s business where $600k embezzled by his bookkeeper.

Interrogation into their records uncovered two payroll files:

  • A smaller accurate file the employees got
  • A second larger file that the bookkeeper deposited into their bank account

Another horror story was where the submission of fake repair and maintenance invoices by the bookkeeper who also controlled all the payments. This totalled about $100k. The real tragedy of this situation is the bookkeeper concerned was a beloved family member.

As a smart business owner how can you learn and ensure this never happens to you?

There are a number of ways you can mitigate the risk of fraud in your business:

  1. Ensure you have overriding access to your bank account and accounting file so all creditor payments and scheduled payroll can be checked and approved by you.
  2. Understand your accounts – having these up to date and reviewing them regularly will ensure you know what’s coming in and going out of your business.
  3. Have management accounts completed more regularly, so your independent advisor can look for things you may not see. If things don’t look quite right, we can interrogate the data and ask the tough questions. Key Performance Indicators allow easy triggers for investigation:
  • Gross margin – looking at key changes and why
  • Wages as % of sales to identify inefficiency and other issues, even fraud
  • Repairs as % of sales
  • General review of expenses and other items that appear out of the ordinary

Keeping a tight rein on your business is good general practice, but having an expert set of eyes review the accounts on a regular basis can help catch issues early on and possibly catch or prevent a fraud from occurring.

To discuss having management accounts prepared more regularly for your business, give your advisor a call on 07 5413 9300.