The bookkeeper is one of any company’s most trusted employees. Unfortunately, that trust is not always deserved. Bookkeepers, particularly those in small and midsize businesses, are ideally positioned to embezzle from their employers.

Less means more

When bookkeepers go bad, there are plenty of ways for them to steal without alerting owners to irregularities. One simple method is to include a ‘less cash’ amount when depositing checks to the company account — an amount that goes directly into the bookkeeper’s wallet. Another tactic is to open a sham account in the company’s name with his or her name as signatory, and then deposit payments to the business in that account.

Outright forgery also is possible. Bookkeepers may forge an authorized signature on checks payable to themselves, or send fraudulent ‘letters of authority’ to the company’s bank.

Signs of trouble

Given the right set of circumstances, anyone could be willing to commit fraud. Scrutinize your bookkeeper if they:

• Frequently takes work home or works late in the evening or on weekends
• Is reluctant to take vacation time
• Becomes defensive or resentful when questioned about records
• Keeps disorganized books
• Explains away tax delinquency notices as government errors
• Insists on picking up mail or liaising with financial contacts
• Suggests that you get rid of your outside accounting firm to save money

None of the above is proof of fraud. There may be reasonable explanations for these and other potentially suspicious activities. But if they occur, be sure to investigate further.

Stop before it starts

One of the best ways to guard against bookkeeper fraud is to segregate duties. Do not let your bookkeeper authorize, sign, post, and reconcile checks while also handling every deposit. If there is no one else in your company to assume those duties, request that bank statements be mailed to your home, so you can review them first.

Also, work with your bank to prevent ‘less cash’ deposits or unauthorized new accounts and to require verification of any letter of authority. In addition, consider asking an outside financial advisor to review your company’s financial and bookkeeping records periodically.

Good to know

Bookkeepers occupy positions of trust in any company. If your bookkeeper no longer deserves your trust, it is better to know now — before this employee causes serious financial losses. Contact us for help.