I hate this scenario. And I find myself here at least several times a year. It’s a new client, sometimes in tears, sometimes with steam coming out of her ears, recounting a story about how her trusted bookkeeper stole thousands of dollars. It’s a tricky place to be, of course, as I am often being interviewed as the replacement. It’s my job to educate the client on how to prevent this awful experience from occurring again while simultaneously gaining her trust after it’s just been so horribly broken.
Unfortunately, bookkeeping is an unregulated industry. Unlike CPAs (or Certified Public Accountants), who must pass and stay certified by their local state licensing agencies, bookkeepers are a little rogue. Additionally, if you think you can call your local police station and have someone arrested for a crime like this, think again. “White collar crime,” in which bookkeepers or assistants steal from you using various mechanisms (which I discuss in this piece) are very hard to prove and police don’t respond (at least in my experience) particularly rigorously.
So, let’s talk prevention.
Step One: Screen
This is your most important step and you must fastidiously screen your potential bookkeeping candidates, or anyone else, who is going to be handling your money or who has access to your accounts (like personal assistants).
If you are hiring a bookkeeper, the best thing to do is to reach out to others in your industry to get a referral. Bear in mind bookkeepers often specialize in industry-specific accounting so it’s in your interest to find someone familiar with the ins and outs of your type of business.
When getting referrals, make sure that the candidate being referred has worked with said employer for at least a year or longer. Financial deception can go on for very long periods of time without the business owner becoming aware there is a problem. Be sure to do a thorough background check on the person you are hiring. You can order one for about $30 from backgroundchecks.com.
Step Two: Oversee
Now you have found the perfect person and she is fantastic at her job, right? Do not, under any circumstances, get lazy in overseeing her work.
The single most important thing you can do is to review your bank and credit card statements every month and get a strong and solid pulse on your finances. Financial fraud doesn’t usually happen because someone wires $50,000 out of your bank account to an offshore bank account. Nope. Not at all. Typical financial fraud happens incrementally. A few hundred dollars here and several hundred there adds up to thousands of dollars very quickly.
What types of incremental transactions? Typically a bookkeeper or assistant will pay his personal cell phone or utility bills out of your account, and then put those same bills on autopay so you end up footing those personal bills for months. Because you and everyone else uses the same utility and phone companies, it’s often easy to miss these types of “extras” on your statements. In one case of fraud with which a client came to me, the “freelance” bookkeeper added himself to payroll. In addition to collecting monthly checks for his fees, he was also getting an extra (stolen!) direct deposit payroll check into his account every two weeks. This went on for a year before the client took notice.
One of the most common scenarios, I’ve found, is something I saw on my very first administrative assistant job. The bookkeeper took out a corporate card under the businesses name, several cards in fact. He kept paying the minimum balances on those fraudulent credit cards from the corporate bank account and discretely racked up $20,000 in credit card debt for the business. The owners chose not to pursue criminal charges because of the time and cost involved. Nevertheless, I heard that this bookkeeper was employed with another business not long after that. The lesson in this scenario? Do not skip out on checking your credit report regularly if others are handling your money.
Step Three: Double Check
There are two important ways you should double check the financial work of others. The first is the good old “spot check.” This can be done by asking to see a Profit and Loss Detail report or your general ledger. Compare a few transactions on your bank statement to either of these reports. Make sure the date, vendor, amounts and details match on both the reports and on the bank statements. If the bookkeeping work doesn’t match your bank statements, your bookkeeper is sloppy — a major red flag in terms of fraud and for the validity of your records for tax purposes. Make sure you don’t see anything on your bookkeeping reports that you can’t match to your banking records.
A second way to double check is to ask your bookkeeper to check your accountant’s work, and your accountant to check your bookkeeper’s work. For example, once my clients' tax returns are prepared by their CPAs I ask for a copy. I compare the tax return to our bookkeeping records and check for errors (accountants are people, too). This year I found a $27,000 mistake on a client’s return. Her CPA completely eliminated travel expenses because he assumed (you know how that goes) that the travel was personal. Once corrected, the client saved thousands in tax dollars. The reverse is also true too, however. A good accountant can help you review your bookkeeper’s work to make sure the data entry is accurate, comprehensive and reconciled (an accounting technique to ensure that all of your books are a true reflection of what happened in your bank accounts).
Adding more things to your never-ending to-do list may seem impossible. But like exercise, or eating your veggies, these simple tasks are something you can't afford not to do. You’ve worked hard for your money. Don’t let someone take it away far more easily than it took you to earn it.