According to the Competition Bureau of Canada, thousands of Canadians are victims of fraud each year, and many of them are small business owners who have been deceived by their trusted bookkeepers.
While there are no exact figures available on the amount, a daily examination of newspapers contains reports from time to time of companies who have been taken for thousands of dollars by those hired to look after their finances for them.
The vast majority of bookkeepers are diligent about protecting your business assets and a trusted backbone of your company, but those who are not can keep up regular thievery for months or even years if you have no process in place to ensure their work is being handled accurately and honestly.
The problem does seem to be escalating because bookkeepers have access to so much of your key financial information at their fingertips with modern technology.
In many cases, the fraud is not even very sophisticated. The bookkeeper just takes money from your business and transfers it electronically to their own bank account. Or they write a cheque to “cash” adding their own name or a third party who is part of the fraud.
The bookkeeper who also does your payroll can defraud you by inflating legitimate overtime payments and taking a percentage back from an employee. They can also engage in a process called “double chequing” where they pay a supplier for the amount owed, and then follow-up the next day by paying a much smaller amount to themselves but coding it to the supplier.
When you are going over the accounts, you just assume that something was missing from the first cheque or a separate part or package of supplies followed the next day.
These are some of the challenges but, what can you do as a small business owner to protect yourself from fraud?

It starts with being careful who you hire

Never just hire a bookkeeper based on an interview in which they seemed capable and could handle the job. Get good references from them, preferably from someone that you know. Find out if they worked for a corporation prior to starting their own business, and call someone you know there and check them out.
Check their resume to see how often they move from job to job and if it is very frequent, ask about their reasons.
Verify that they attended the training facility that they have listed on their resume as well.

Look over your books in a random pattern

As busy as you are, you need to regularly take time to look over your company’s books. Make sure that you do this at random times, rather than every second Friday morning, for example.
Look closely at how the bills are coming in, how they are paid, receipts from clients showing the bill is paid, and especially check the petty cash and how it is managed.

Watch your bookkeeper like other employees for signs of danger

You may love your bookkeeper and believe him or her to be honest, but if their spouse or partner is just out of jail after being caught in a fraudulent scheme, be extra careful. It may not seem fair to the person you hired and trust, but you have a right to see if they might be under the influence of someone who is not as honest as they are.
Look for signs of drug or alcohol abuse, or over-dependency on prescribed medication for anxiety or pain. A legitimate injury or painful condition can sometimes lead to abuse of medication in the long-term, and the need for more money to fund the purchase of pills that are no longer prescribed.
Pick up any stories about your bookkeeper going to casinos for weekends or Vegas for holidays or even Bingo on Thursdays and try to determine if they are extremely interested in gambling. There may be nothing wrong with buying a lottery ticket, but if your bookkeeper spends a lot of time in the local casino or online gaming, this could make them vulnerable to needing money desperately.
Motivations for theft are as individual as the fraudster, but there are certain addictive behaviors that are linked to missing money more often than others.
Other signs that there could be problems include frequent absences from work and a large number of personal calls on the job, with their voice dropping or sudden call disconnections when you walk into their office.

Set up good practice protocols

There are certain things that you should ensure no matter how much you trust your bookkeeper.
For example, all cheques should require two signatures. It is foolhardy under any circumstances to sign a whole bunch of blank cheques and leave them with your bookkeeper to use to pay bills. Never agree to let your bookkeeper write cheques from a home office. Look closely at each cheque that you sign, rather than just automatically scrawling your signature on it.

Use technology to your advantage

Modern technology can benefit the fraudster, but it can also benefit the small business owner if used as a counter-measure to determining where your money is being spent.
For example, if your bookkeeper has access to credit cards or debit cards to pay suppliers or bills, you can go to your online account and click on settings. You can double-check on everything by setting it up so that when a purchase is made on any card your bookkeeper uses, you get an email or an automated phone call, or both.
You can either tell the bookkeeper you are doing this or not. It is best to keep it to yourself if you harbor any suspicions about the bookkeeper at all. This is an excellent strategy to catch them in the act.
Your bookkeeper may need to have access to your bank statements and account information if you are gone a lot, but you can still protect yourself. Make sure that information comes in a digital format where it is “read only” so they cannot go in and physically change an online record, or transfer funds or make other changes without your approval.

Use best practices even on the smaller things

A good and honest bookkeeper will encourage you to engage in best practices for your protection as well. If money is removed from the cash box, for example, a receipt should be placed in it. Credit card use needs to be severely restricted (as in only used to purchase gas at certain stations, for example) or the debit card used only for specific supplier stores.
Every month print out your transaction list and check it. Identify any payment that you are not immediately familiar with and question it.

Outsource your bookkeeping

One of the best ways to protect yourself from bookkeeper fraud is to outsource your bookkeeping to a professional firm that has excellent protocols in place to ensure you get the services you need without being vulnerable to dishonesty.
At AIS Solutions as an example, we supply all the services that an in-house bookkeeper would do: accounts payable, accounts receivable, payroll processing, bank reconciliations, HST filing and financial reporting.
We are also conscious that the majority of bookkeeping fraud cases across North America happen because one person assumes complete control of these financial aspects of the company. They issue all the cheques and payments, reconcile the bank statements, and even prepare the taxes at the end of the year.
We insist on duplicate staff support for all our small business clients, so a minimum of two people are familiar and working on your account at any given time. We started to do this initially just as a best practices plan to ensure that if a bookkeeper on our staff is ill or on vacation, the client never has to wait for service. As time passed, we realized it was also highly effective in ensuring that no one person worked without the practiced eye of another looking over what they had done.
We also insist you use a separate accounting firm to do your year-end taxes so that an additional and objective set of eyes are also viewing your books.

Lack of knowledge can cause inadvertent fraud

Sometimes your small business accounts are mishandled not out of deliberate fraud, but more out of ignorance at how certain procedures should be handled.
We get around that by ensuring specialized training for all our bookkeepers by our team of accountants. The added safeguard is that besides having the eyes of two bookkeepers checking your finances, you have a third set of eyes, the accountant, who makes random but regular checks on the work being done.
The most effective way that outsourcing your bookkeeping protects you from fraud, however, is that it gives you access to all of your records 24 hours of the day, seven days of the week. You can wake up at 3 a.m. and want to check something and all you have to do is access your QuickBooks Online database and find what you are looking for.
Thank you for reading this post. Until next time. Take good care of yourself.
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