How do I know if my bookkeeper is stealing from me?
When a bookkeeper is stealing from a company, it is often a result of a lack of financial oversight by the owner and poor separation of duties in the financial controls.
When your bookkeeper is stealing from you it is common to find the following conditions present in the company:
- Owner rarely asks for detailed financial statements
- Owner does not review the bank account balances on a regular basis
- Owner is not comfortable with "the numbers" and leaves it all up to the bookkeeper
These conditions constitute a lack of oversight and do not guarantee theft, but addressing these three items alone can usually prevent theft and embezzlement in a small business.
Regarding financial controls, companies that experience theft often have the following symptoms:
- Bookkeeper has control over all financial data input
- Bookkeeper has control over the financial reporting (or there is no reporting)
- Bookkeeper has access to cash
- Bookkeeper has permission to make transactions to your account through online banking or in person
- Bookkeeper is in control of who has access to financial information, including bank statement
These conditions constitute a poor separation of duties. The separation of duties is a common issue in small businesses and difficult to overcome. However, these conditions do not prove that your bookkeeper is stealing, they just make it very easy for that person to do so.
Signs that you may currently have an embezzlement problem include:
- Difficulty getting reports from the bookkeeper on the financial state of the company, and/or receiving reports that are confusing and unclear
- Resistance by the bookkeeper to allowing any outside access to the books, such as bringing in consultants, switching payroll providers, hiring an audit firm, etc.
- Difficulty in getting a bank statement from the bookkeeper, no longer seeing them come in the mail, etc.
- Complaints from vendors about late payments, incurring of late fees, missed payments, etc.
- Frustration with the bookkeeper by other members of the company, often because of their dictatorial control over all things financial.
With this last point, this is something that the owner can often see as a positive, feeling that the bookkeeper is keeping a close watch on the money. This is okay, as long as the owner is also keeping a close watch on the money. The surest way to avoid embezzlement is to ask for a full set of financial statements every month (P&L, Balance Sheet, Cash Flow Statement) along with the bank statements.
It is easy enough for the owner to get daily bank account balances sent to their inbox or to review them online periodically to make sure that they match with the numbers on the Balance Sheet. Finally, a working cash flow forecast that ties to the bank every Monday is an excellent way to manage cash levels and prevent fraud.
