The Most Likely Person to Steal From Your Business Is…

For many of us, the economy has turned around and businesses are making money again. Sad it is to say, the biggest danger right now is theft. And the most likely culprit is going to be someone who works for you. We can even nail it down more than that.

Over half of all embezzlements come from in-house bookkeepers. There are three main reasons why small business owners are particularly vulnerable to bookkeeper embezzlement:

1. Opportunity. In a small business environment, there aren’t enough employees to have proper separation of duties. Separation of duties means that critical functions are divided amongst more than one person. For example, you don’t want the person who writes the checks to also be the person who reconciles the checking account. You don’t want the person who handles the customer billing to also be the person who does the financial statement preparation.In a small business office, though, you can’t jusify having more than one person in bookkeeping, so many owners step back into the bookkeeping role by signing all checks themselves, doing the bank reconciliation, having statements sent to their personal home and other strategies that ensure they see the information.I don’t like this because (1) it pulls you away from your core competence within the business and makes you responsible for something you’re most likely not that good at anyway and (2) it dooms your business to always being small. You have no leverage with this strategy.

   The alternative, which is what I recommend, is to have an outside party involved in the process. This could be using a virtual bookkeeping company like Cash Flow Accounting or it could mean having a virtual CFO (chief financial officer).

2. Poor Hiring Practices.Small business owners often don’t know how to hire bookkeepers. Because they don’t fully understand accounting terminology, financial statement preparation, accounting systems and even the importance of accurate and timely financial statements, they are more likely to hire based on who the employee is.We see lots of friends, family and friends of family and family of friends in the bookkeeping role. In fact, interestingly enough, there is generally a lot more thought that goes into hiring service providers and delivery boys then there is in who you entrust with your hard-earned money.It’s critical to do background checks on people who handle your money that you allow in your business. If you’re hiring someone outside your firm, it’s best if the company has a CPA or attorney as one of the owners. That way if something goes wrong, you have malpractice insurance and ethics laws backing you up.

   For example, if you hire my company Cash Flow Accounting to do your virtual bookkeeping or fill the role of virtual CFO, you have a lot of leverage over me to make sure it works out. That’s because I’m a CPA and the last thing I want to have happen is put my license at risk because someone I have working in my company does something illegal or unethical.

3. No Accounting Systems.Even big business owners generally don’t know how to put together an effective accounting system with great checks and balances designed to identify and prevent fraud and embezzlement. The big business owners hire experts to set up those systems.Small business owners don’t have the same resources as big business owners and so often rely on the people they hire to create the systems to police themselves. Let me say that again: They hire a bookkeeper and then expect the bookkeeper to develop a system that makes sure the bookkeeper can’t steal. That’s all well and good if you’ve got a 100% shining star with great ethics, but most don’t.Depending on the survey you read, somewhere between 30 – 60% of all employees have stolen. Knowing that you have a 1 in 3 chance that your bookkeeper is going to steal, do you really want your bookkeeper to design the system that will catch them before they steal?

The best, most cost efficient system I know is to either have your bookkeeping done out of the office, through an outsourced solution, or have a virtual CFO analyze the monthly financial statements with you. Your CFO can also help document your current system flow and look for potential holes.

Yes, this will all cost money (the cheapest solution is just outsource the bookkeeping) but if you’re working so hard to build a business, why not put some effort into keeping the money too?

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