Teach Your Clients How to Protect Their Business by Using Your Services

Just the other day I was speaking with a colleague of mine whose in-house bookkeeper of the past 16 years was embezzling money from her business - quite a lot of money a lot of money as it turns out. Theft of money ... theft of inventory or equipment ... theft of intellectual property. At one time or another, nearly every small business experiences some kind of employee theft or fraud. nnSmall businesses are particularly vulnerable to these swindles because they rarely have the resources or security controls in place to stop them. For example, many small businesses rely on one person to complete all their accounting and bookkeeping transactions. This person opens the mail, processes accounts, makes deposits, handles invoices, and oversees petty cash. While most individuals will handle this work with complete honesty, this kind of unrestricted access makes a business vulnerable.nnMy colleague trusted her bookkeeper completely giving her full access to all accounting information. This individual opened the mail, had access to online bank information, check stock etc. In the bookkeepers own words, she began "borrowing" money to help her meet her monthly bills. "I had every intention of repaying what I took, but when no one noticed, I started taking a little bit more and the next thing I knew I was writing a check to myself every week." My colleague has decided to not press charges against this individual but she has placed a lien against her home and a full blown investigation is underway to determine the total amount taken. Lack of attention to the accounting process has cost my colleague dearly -- not only is she dealing with the fact that she has been robbed and betrayed but it is going to cost her more money to determine the full extent of the crime. nnEmployee theft and dishonesty cost US businesses billions of dollars each year. Unfortunately, small companies have the most to lose because embezzlement, stolen trade secrets, or missing inventory can cripple a small firm or even put it out of business. The only way to prevent this is to devise prudent, effective controls in all areas of potential exposure and enforce them consistently. nnHere are a few suggestions towards creating effective financial controls that will protect your business: nnKeep duties separate - no single employee should control a financial transaction from beginning to end. The person who writes your checks should never be the person who signs your checks. The person who opens the mail should not also record the receivables and reconcile the accounts. By dividing up responsibilities, you will make it more difficult for a person to steal from you and manipulate the records to cover it up.n nGet your bank statements personally - don't give a person who is in a position to embezzle a chance to destroy or remove evidence of the wrongdoing. In the case of my colleague she did request a copy of the bank statement from the bookkeeper but for one reason or another, the bank statement was always missing pages or never provided. The business owner or an outside accountant should receive unopened bank statements and canceled checks each month. Review these carefully. Examine the payees, signatures and endorsements on each check. nnClosely guard your company's checks - don't be careless with your checks. Keep them locked in a drawer and don't give out the key. Use pre-numbered checks, and check for missing check numbers frequently. Have a "voided check" procedure in place that requires you (the owner) to validate all voided items. Never sign a blank check.n nSign or verify every payroll check personally - this may take some time, but it is generally worth it. Review the checks to make sure they are for people you know. If there is a name you don't recall, go find that person. Keep a weekly count of the number of people on your payroll, and verify that number against the number of checks you have. If you are using the direct debit feature that most payroll companies offer, either make sure you are calling in payroll yourself or are reviewing the payroll reports to make sure there is no one being paid you do not know. nnWatch your receivables closely - have more than one employee involved in counting and verifying incoming receipts. Make sure all incoming checks are properly endorsed. Purchase a "For Deposit Only" stamp with your account number on it and have all checks restrictively endorsed when they are opened - this can prevent an employee from cashing them. Personally investigate customer complaints that credit has not been received for payments. Get a copy of the front and back of the customer's check, and be sure it was deposited into your business account. nnMake your bookkeeper take vacation - an employee who is embezzling from you may need to make a continuous effort to conceal this kind of stealing. Many small business owners are surprised to discover employee who appear loyal-they never take vacations and never-stay home sick are actually stealing from them. The reason these people have to be in the office constantly is to cover their tracks. Insist that the employee who performs the bookkeeping take a vacation every year. Ideally this vacation should be at least two weeks in length, and occur at the end of the month, when the books are being closed. Use this time to have your books reviewed by someone else and look for discrepancies.n nMake sure your client understand their books - embezzlement commonly occurs when bookkeeping is sloppy and unsupervised. As the business owner, you must be familiar with your company's bookkeeping and recordkeeping system. This way you can easily review the books and make sure nothing is amiss. If you are not a "numbers person" have your accountant spend some time with you to show you what to look for, or take an accounting or bookkeeping course. Trusting someone else to oversee this most important part of your business only opens the door to fraud. nnSecure your bookkeeping software - don't allow unauthorized access to your bookkeeping software, and make sure that each user has their own username and password. Don't share the administrative password with anyone other than you (the owner). Have each user change their password frequently to lock out unauthorized persons from this program.