Bookkeepers are a dime a dozen. In fact, anyone can open up shop, regardless of the amount of training he or she has had. Add to that, the fact that most business owners are not numbers people, along with the woeful lack of industry regulations, and it’s downright scary what a poor bookkeeper can do to a business, intentionally or not.
I cannot tell you how many times I’ve personally heard about a bookkeeper stealing money from a business and getting away with it for years! Of course the business owner did not know how this could possibly happen because they were not involved.
This type of story is becoming far too common. Therefore, I wanted to point out some of the warning signs that could potentially indicate that this might be happening to you and your business. This list is not meant to be all-inclusive, but if any of this rings true for you, run – don’t walk – to your nearest CPA.
- You don’t have access to your accounting system. Why on earth would you give someone full control of your finances without maintaining access yourself so you can review their work from time-to-time? These are your records and, I believe, your company’s property, so don’t let anyone tell you that you cannot have access to your accounting system.
- Your bookkeeper gets defensive when you start asking questions or requesting information. If you ask to see a profit & loss statement, a bank detail report, or any type of banking or financial document and you get an attitude in response, this is a red flag. No one should be so protective of his or her work that you cannot review it. If you are met with such resistance, the reason is probably because your books are a complete mess and the bookkeeper does not want to get fired. This goes back to #1. You should not even have to ask; you should have full access to your records at all times.
- Your bookkeeper does not prepare bank and credit card reconciliations. This is one of the most basic bookkeeping tasks for any business. Why? Because it is your checks-and-balance system. It is the way you know if you have everything in your financial system that should be there – nothing more or less. These reconciliations should be done monthly, and I advise you get copies of them. This shows your cleared and outstanding checks, deposits and all other transactions, providing a great snapshot of your business transactions.
- Your bookkeeper adds adjustments to the reconciliations. The reconciliation is a comparison between your records and those of the bank. Like I said in #3, it is your checks-and-balance. If you see reconciliation adjustments, your bookkeeper is doing something wrong. A bookkeeper should aim to NEVER have an adjustment, because that means he or she did not account for something properly. Instead of giving up and saying, “Oh well, I missed something,” make sure your bookkeeper finds the adjustment and enters it into the system correctly.
- There are crazy descriptions within different transactions. I’ve seen descriptions like, “Opening balance?” before. There is NO reason for a question mark here! Regularly review your transaction descriptions so you really get a sense if your bookkeeper knows what he or she is doing. If you never see any descriptions, you see odd descriptions or there are a lot of journal entries, this should be another red flag.
Stay on top of your business’ financial well-being by requesting monthly reports from your bookkeeper and giving them the once-over sniff test to make sure they do not smell bad. I also recommend you hire both a bookkeeper AND a tax CPA, and that they come from separate firms. This provides yet another checks-and-balance layer. A bookkeeper and a CPA from different firms will wind up checking each others work more thoroughly, and should notify you if they see something awry.
As a business owner, you have the responsibility to look over your bookkeeper’s shoulder from time-to-time. Remember that it is your business and your shirt if something goes wrong.