How to Audit Bookkeeping Records

Think of an audit as an accuracy check on the company books.

While an audit by an independent third party is optimal, it is not necessary to monitor the work of bookkeepers and the accounting department. An internal audit can provide a paper trail that spotlights weaknesses in current policy and security measures as well as locate inaccuracies and potential illegal activity. The key to a successful internal audit is providing a complete and accurate picture of the activity in question. Spend the time to double-check your facts and maintain and impartiality as you let the facts speak or themselves.

Things You'll Need

• Accounting records
• Company policy manual
• Accounting procedures
• Access to key personnel

Instructions

1. Determine the scope of your audit. The scope identifies what area of the bookkeeper's work you intend to review and to what degree. For example, if you concerned that the bookkeeper is not tracking inventory correctly, your scope may be all inventory purchases for the last six months.

2. Review the current company policy and accounting procedures. The review will give you a good starting point for the audit because you will understand the procedures governing the bookkeeper's work, and the policies with enlighten you are any deadlines and dollar amounts that may require special attention. If possible, speak with the manager overseeing the bookkeeping regarding any concerns she may have.

3. Gain access to the bookkeeping records, both internal and external. Begin at the beginning and recreate the transaction story by following transactions from the beginning through the presentation on the financial statements. Continuing with the example, you would start with the purchase order, and then check the packing slip and the booking of the invoice. From there, see if the invoice was paid. Track the payment to the cancelled check clearing the bank. You may also want to take a physical count of the inventory to see if the count agrees to the balance in the financial records.

4. Develop the history of the transaction and create a record of your results. Attach pertinent copies and documentation, particularly if you find irregularities in the records.

Tips & Warnings

• Use the knowledge you find in your internal audit to improve procedures and prevent future errors and security threats.

• If you find a potential security issue, hiring an outside expert to review the situation will help you develop a stronger legal case against the offender.

• Avoid jumping to conclusions until you finish your investigation. A bookkeeper may have realized there was a problem and corrected it further down the audit trail.

References

• Cornell University: Frequently Asked Questions
• AASHTO; Uniform Audit & Accounting Guide; American Association of State Highway and Transportation Officials; 2005
• Nolo; Preparing for a Business Audit; Frederick W. Daily, JD