How To Guard Against A Dishonest Bookkeeper

Friday June 1, 2007

Q. My bookkeeper writes all the checks, handles deposits and balances the books. She does a terrific job, but a family member suggested that this was a bad idea and that I am inviting someone to steal from me. What do you say?

In a small business such as yours, it's very common for an owner to rely heavily on one person such as a bookkeeper to handle most of the daily financial transactions.

While it's preferable to divide the various duties among several employees, small businesses often don't have the financial resources to hire a large accounting staff. However, there are several things you can do to deter or prevent employee dishonesty.

1. The bookkeeper shouldn't have signature authority on the checking account. If you must have someone available to sign checks in your absence, entrust that duty to an employee who does not also have the task of writing checks. If there are no employees other than you and the bookkeeper, then ask the bank to require two signatures for checks over a certain amount. Obviously, this isn't a foolproof measure because a dishonest employee can still forge your signature. Never buy or use a signature stamp even if you have to sign dozens of checks manually. You're just asking for trouble -- even if you keep it under lock and key.

2. Insist on a hard-copy monthly bank statement mailed to your business and held for you to open. Make sure all canceled checks or check images are included even if the seal appears intact.

You should occasionally manually examine every check in the statement front and back. You are looking for unfamiliar payees, unfamiliar vendor account numbers, false signatures, multiple checks to the same payee (think payroll), and any other oddities.

3. Require that your bookkeeper take a vacation each year. The time should be taken in consecutive days rather than just a day here and there. Many cases of fraud go undetected because the perpetrator never leaves the scene of the crime unattended.

4. Get an outside opinion. If you have a certified public accountant who prepares your tax return or compiles financial statements for you, you can hire that person to periodically do some random testing of transactions, particularly those in the cash account, to see if anything is amiss

This is by no means a comprehensive list of things you can do to protect your business assets, but it's a good start. A general rule of thumb for accounting controls is that no one person should ever have complete control over any transaction from beginning to end. Try as much as possible to separate the control over assets such as your checking account from the function of authorizing transactions and the record-keeping duties.

Finally, it may be a good idea to consult with your insurance adviser about whether it may be appropriate for you to obtain coverage for employee dishonesty, just in case.

Lynn A. Mitchell, certified public accountant, is a vice president with Campos & Stratis, CPAs, a Teaneck firm dedicated to forensic accounting since 1969. Participants in Ask the CPA are members of the New Jersey Society of Certified Public Accountants (NJSCPA).

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