Watch out business owners — bookkeeper theft cases increasing, destroying profits and dreams

During the last few months, I’ve noticed that more businesses and non-profits have become victims of theft by their internal bookkeeper.

I have read articles about this problem and, unfortunately, even worked with my own clients who have experienced the pain of this crime.

First, I want to say that most bookkeepers are outstanding and they take the trust their employers give them very seriously. Most would not ever attempt to defraud them. That being said, there are some simple things the business owner can do to prevent potential theft or detect it before it wipes away their finances and their dreams.

The first thing is let your bookkeeper know that part of your company’s internal control includes your review of financial reports.

In many embezzlement cases the business owner has had blind trust that the bookkeeper is acting in the owner’s best interest.

No one suspects ‘trusted’ bookkeepers

If I had asked the two theft victims that I am now working with if they would ever have thought their bookkeeper would steal from them they would have said, “No way would they do something like that. In fact, they are considered like family.”

How do these thefts happen?

One way is that in today’s world of bookkeeping software, the bookkeeper can write a check in their own name, then enter the transaction as a reimbursement for a common expense category like office supplies or fuel. The actual amounts of theft are usually small transactions but when done on a repeated basis the dollars can multiply significantly.

Another technique involves using the company credit card. Once again, they could put their fuel on the card or order something personal. When the owner sees a check listed for American Express it is usually one lump sum that pays the monthly charges.

Another instance of theft involves using the company’s cell phone provider to add other users to a calling plan or upgrading the features of a plan that benefit the bookkeeper, but checks are simply written out for the higher costs and there are no red flags for the owner when accounting reports are read.

Another area is adding hours to the bookkeeper’s paycheck. Who is going to notice three more hours on a paycheck? The owner just sees the net check and as long as it looks “normal” no one is the wiser. Well, this is a double whammy as your company is out the wage expense plus it has to turn around and pay taxes on the stolen money. OUCH!!!!

You can Google the term “bookkeeper theft” and you’ll find many other examples of this problem. To make matters worse, the fact is that a fair share of employee theft doesn’t ever get reported.

What do you need to do for theft prevention?

So what do you need to do to protect your business from embezzlement?

1) Sign your company’s checks. Many thefts occur when the bookkeeper has a stamp or signature authority.

2) Look over the charges on your credit card statements and cell phone bills before cutting the checks. Are there any charges to vendors you don’t recognize?

3) Do your own audit. I don’t mean the big expensive kind. I am talking about printing out a month’s activity in office supplies, for instance, and have the bookkeeper pull the invoices to back up each check. No invoice for a particular check means it’s time to look up the check and trace what happened. This is also a good test for finding out if your record-keeping will suffice in the instance of a tax audit.

4) Have the bank statements sent to your home address so you can always look over the cancelled checks without office distractions.

5) If you’re not signing all the checks, have two people sign company checks. It’s less likely that two people will agree to steal from you.

6) Review the payroll several hours before the payroll is processed.

You say you ‘Don’t have the time?!’

Now you may be saying that these steps would involve a lot of time that you just don’t have.
My answer to that is to consider this bit of simple business math: If an employee steals $5,000 it’s not unusual for many businesses to have to increase sales by $15,000 to $20,000 just to break even from the loss.

A dishonest bookkeeper is stealing PROFITS!!!! Also, you’re losing much needed cash flow that could even cause you to have to borrow funds and pay interest on your loan.

The point is that having a bookkeeping strategy that fits your business and protects your business investment and income can prevent theft losses. Your CPA can help protect you by helping you establish bookkeeping practices that not only keep track of your money but also make sure no one is stealing from you.

Many things in life can happen to you that are unpreventable, but bookkeeper theft is one of those things you can prevent by taking action before it happens.

David Rumsey is the owner of Pettis Rumsey Inc., a Marysville accounting firm that works with small business owners to increase financial performance, tax planning and preparation. He can be reached at 360-659-8502 or by sending e-mail to david@pettisrumseycpa.com.