QuickBooks Audit Trail
Tucked away inside QuickBooks is a very handy report called the audit trail report. The QuickBooks audit trail report provides a "digital fingerprint" of everything that happens within your QuickBooks file, both good and bad. It tracks each user's entries, modified transactions, voided transactions, and deleted transactions. The QuickBooks audit trail is on by default in all versions 2006 and newer. Prior to that, it had to be turned on manually.
QuickBooks is by far the easiest program to use with the most complicated and diverse applications in it that never get used by most business owners. Fraud happens every day and as I have said before, small businesses lose more money every year due to fraud than some of the largest corporations. What a lot of Fraudsters, who happen to use QuickBooks don't know is that every move they make, every step they take, is being 'watched' by the audit trail function.
In the audit trail, if an entry has been altered or deleted there will be two or sometimes three lines for one transaction. The one on the bottom is the original entry, the one(s) above it have been altered or deleted and the report will show what was changed, the payee, the amount, or an account and tell you which user entered the original, which user changed it and the day and time it was done.
So how do you tell if it's fraud or just someone making changes? Suppose you run the report and see that someone has been frequently changing invoices. So how would someone commit fraud by altering an invoice? If the same person that prints the invoices also sends the checks, it is very easy to print the invoice for your approval at $200 or more than what was actually invoiced for. Once you've approved what should be a $5,000 invoice for $5,200, the clerk will change the $5,200 to $5,000 and send the vendor the right amount, and at the same time issue themselves a check for $200 which would be written off to another account somewhere in the books. The bank reconciliations would always match and no one would be the wiser. This is one reason that in Quick Books you cannot print an invoice without saving it first.
Typically, look for checks being issued for identical amounts, during the same period every week, every month, etc. Sometimes the fraudster will send two checks to the same vendor and call up a day later and ask the vendor to return the check 'mistakenly' sent. If the fraudster is the same person who opens the mail, he or she will take the check and 'wash it' and make himself/ herself the payee.
Therefore, be on the lookout for checks with changed payees. I have investigated more than one case where we found the bookkeeper changing the payees on the check and altering the Quick books records after the fact.
To help make your QuickBooks system more fraud proof consider the following tips:
- QuickBooks Users and Permissions
- Use QuickBooks permissions to separate tasks and functions
- Use the "External Accountant User" in QuickBooks only for the accountant, advisor or consultant since this user gives administrative access to your file.
- Insist on individual passwords
- Enable QuickBooks customer credit card protection within QuickBooks whether you accept credit cards from within QuickBooks or not. Enabling this feature will require users to change their passwords every 90 days and will require stronger passwords that must contain special characters, numbers and capital letters.
- Limit user's rights to accounts payable records or give them permission to create transactions only not complete transactions.
- Allow a user to enter checks but not print checks
- QuickBooks Closing Date – use the QuickBooks closing date feature to lock transactions prior to a date and be sure to assign a password. Each time a month is closed, change this date to the most recent closed period.
- Develop a schedule for closing out each month – this schedule should include time frames for entering employee time and sending out invoices, closing out payables for the month, performing bank reconciliations, entering adjusting entries, etc.
- Client Data Review feature in QuickBooks – Use this feature to view any changes made to lists such as the chart of accounts, Items, vendors, and customers. This feature will identify what has been added, changed, deleted or merged within the lists and will allow you to troubleshoot beginning balances, review open credits and payments in accounts receivable and accounts payable, and many more items.
If you would like assistance in setting-up any of the above procedures or suspect fraud occurring in your organization, please contact Bob Garvey, MKS&H's founder and practice leader for the firm's forensic accounting and litigation advisory services. Bob has over thirty years of experience and is well known in the Mid-Atlantic region for providing forensic accounting, fraud investigation and fraud deterrence services. He can be reach at firstname.lastname@example.org
or at 410.296.6200.