Many business owners start out doing their own bookkeeping, in an effort to save money. We don’t fault anyone for doing so. When you’re building a business from the ground up, it doesn’t make any sense to spend your precious funds to pay someone to do jobs you can manage on your own. Eventually, though, the bookkeeping workload is likely to become too time-consuming. Or, you may find yourself confronted with accounting issues that you don’t really know the best way to handle. Worse yet, when tax filing time comes, it may turn out that you haven’t really kept accurate books, and you’ve got a lot of mistakes to fix. But sooner or later, you’re going to need to hire someone to work on your books, and that exposes you to a new concern: bookkeeping fraud.
Is bookkeeping fraud real? You bet it is. No one really wants to be suspicious of that kind, soft-spoken individual who comes to work on your books. But let’s look at some cold, hard facts. The Association of Certified Fraud Examiners estimates that the average company loses 5% of their revenue to fraud. Though this translates to trillions of dollars annually on a global basis, those are numbers that are difficult or impossible for us to comprehend. Let’s look at another statistic in the same report: the median loss from each case of fraud was $150,000.
Bookkeeping fraud can be committed by a variety of methods, and it can happen to anyone. You may think that embezzlement only occurs in big companies, where a lot can be hidden and go unnoticed,simply because of the sheer volume of activity. But that’s not always the case. Even an individual, in this case, a celebrity, Joe Piscopo, found that a bookkeeper he hired stole $171,000. There was another recent news story about someone who committed bookkeeping fraud, to the tune of $450,000 stolen from a small rural fire department. Yes, it can happen to you too!
When you give someone your checkbook, and access to all of your accounts, you’re basically opening the vault to that person, and not everyone can be trusted with that responsibility. You as the business owner will need to keep an eye out for some of these warning signs that you may be a victim of bookkeeping fraud:
- Your bookkeeper has asked for signing authority on your checking account.
- Your bookkeeper has access to company credit card information. If so, have they been receiving an unusual amount of mail-order packages delivered to the office?
- Your bookkeeper seems to live a lifestyle that appears to beyond the means of their salary.
- Your bookkeeper likes to work late, or when no one else is in the office.
- Your bookkeeper doesn’t like sharing responsibilities with co-workers, or gets defensive when you ask questions about the books.