What you can do to avoid embezzlement

Corporate stealing

Business owners aren’t generally interested in the details of their bookkeeping. Sure, they want to make sure that it gets done, but beyond that, their energy is best spent on other aspects of the business they have worked so hard to create. That’s understandable, but the hands-off approach can come with a cost.

I recently spoke with a pair of owners who thought they understood the financial condition of their small business. The bookkeeper produced monthly statements, which the owners reviewed with interest. When questions were asked, however, the bookkeeper gave answers that superficially addressed the owners’ concerns, but really obfuscated the numbers’ true meaning. Common answers were along the lines of, “You have to understand how complicated it is.”

In retrospect, these answers were obviously vague and unsatisfactory, but, as with many business owners who don’t trust their own abilities and do trust their bookkeepers, they assumed the numbers were okay. In this case, that assumption was wrong; “Bobbie” was manipulating money and financial reports. A credit card that the owners thought was closed was, in fact, being used by Bobbie for personal reasons, and the resulting monthly statement was paid with company funds.

There’s no 100% secure way to avoid the threat of embezzlement, but there are some signs to watch for, and actions to take, so that business owners can protect themselves.

Warning signs

Be aware of changes taking place in your bookkeeper’s life. You don’t have to be best buds by any stretch, but keep your ears open for talk of divorce, layoffs, children off to college, major car trouble, and so on. Few bookkeepers would dream of stealing, but those few may see no other way out.

Close relationships your bookkeeper may have with vendors or customers could potentially lead to collusion between the two. Again, most people are honest, but you don’t want your company to be the victim of an exception.

Accounting-speak that makes no sense to you should set off alarms. Yes, some concepts are difficult to translate into everyday English, but find someone that can do that. Bring in a trusted colleague, or take your financial reports to the local SCORE office, your banker, or similar professional for an opinion. A fresh set of eyes is invaluable.

Routine steps

Checks and balances! In many small businesses, this is difficult, but when staffing levels permit, separation of duties goes a long ways to avoiding mishandling of funds.

Review your original bank statements, be they paper or electronic. In the list of company-printed checks, look for missing check numbers; in the electronic debits, look for odd or duplicated names. Two payments in a month for what you thought was one credit card account should be red flag.

Sign all outgoing checks. Again, you can look for missing check numbers. If a check had to be voided, insist on it being included in the proper sequence of the stack you are signing. A verbal, “Oh, that got caught in the printer.” explanation may be valid, but assure yourself. It’s your money, after all!

If you’d like another pair of eyes on your financial records or have other questions about this topic, feel free to give me a call.

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