How many times have you read in the news of bookkeepers or others in charge of company funds embezzling money for years without being caught? We need to have a sense of trusting those we employ, especially those who handle sensitive areas of our business, but it is equally important to have common sense and put strong controls in place to prevent this situation from happening to you.
Common Sense Fact 1:
Do not have the same employee handle the books and open the mail!
This creates an opportunity for a bookkeeper to hide invoices that they may pretend to be paying…or worse yet, divert Company tax payments into personal accounts and hiding the IRS tax notices to the Employer demanding payment. Also, there have been cases of bookkeepers opening company credit cards without the owner’s consent and charging personal expenses on the cards. If they are the only ones opening the mail, this is an easy scam to pull off.
Common Sense Fact 2:
Do not give bookkeeper authority to issue and sign checks
Bookkeepers should only be allowed to cut checks, but you or someone in authority must be the only ones allowed to sign the checks. Some company owners get what they deserve because they want their bookkeepers to do everything, believing they are cutting costs or saving time. Putting blind faith and trust in bookkeepers is not wise. A practical setup is to have the bookkeeper cut the checks on a weekly basis and provide an accounts payable report at the same time. As the business owner, you should know who you owe, how much you owe and when you want to pay them. Reviewing this type of report will also make it impossible for a bookkeeper to set up a bogus company and embezzle money.
Common Sense Fact 3:
Review your monthly bank statement reconciliations
You should know how much money is coming through your accounts and where the money is flowing to. Many bookkeeping schemes involve bank transactions. After your bookkeeper reconciles the account, you need to review on a monthly basis. It is quite easy to adjust numbers to force a bank statement to reconcile. You need to completely understand your bank statement reconciliation. Your cash is the lifeblood of your Company. The person who makes deposits to the bank should not be the same person who reconciles the bank statement.
Prevent bookkeeping fraud in your property management business!
Establish tough internal controls to fight bookkeeper fraud. Don’t be too trusting – even of longtime employees. And remember that setting up and strictly following control procedures, though sometimes inconvenient, is a must for protecting your cash.
Distribute bookkeeping responsibilities among several people. Don’t let a single employee compile deposits, sign checks, make transfers between accounts and reconcile bank statements. The temptation to commit fraud in those circumstances can be overwhelming – especially to someone who’s experiencing personal money problems you know nothing about. It would also be the course of wisdom to designate someone who has no daily involvement with bookkeeping to reconcile the bank statements each month.
Richard Hart EA, CAA
Hart & Associates
Offices in Las Vegas NV, Manhattan NY and Beverly Hills CA
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