What to Do If You Think Your Bookkeeper is Stealing from Your Business
By Leah Wietholter
The Cash Situation
Imagine that you’re a business owner in the following situation: you know your products or services inside and out, and there is no one better at what your business does than you. The one area, however, where you aren’t quite as savvy is the day-to-day financial operations of your business. Like any other sensible business owner who wants to expand his business and outsource administrative and financial tasks, you hire a bookkeeper. This person will take care of all the billing, payroll, taxes, expenses—all the things that take your valuable time away from your main work. You are so relieved to have help in the areas you dislike the most, you don’t really stop to think about whether it’s sensible to put your trust in this person...until one day when you start to question how things are being run without your careful oversight.
The cash balance at the bank isn’t making sense. For the past couple of months, cash has been lower than usual. At first you thought it was a one time event, maybe a fluke—a timing difference. You reflect over the past couple of months. Maybe there’s an outstanding client payment. No, that’s not it. Maybe you purchased a large piece of equipment and didn’t realize an early payment was made on it. No, that doesn’t seem to be the case. Finally, you determine that there is nothing obvious that should have so greatly altered the cash available to your business. You discuss your concerns with your bookkeeper, and ask her for an explanation. She says not to worry because bills were a little higher recently, but she anticipates that things will be fine this next month. You accept her response and move on, but you still can’t ignore that feeling that things aren’t right somehow.
Step 1: Review Bank Statements
Do not accept your bookkeeper’s explanation. Listen to that terrible feeling in your gut, and then take the next step of reviewing your bank statements. This doesn’t require forensic accounting magic—just access your online bank statements and scroll through the transactions, looking at every deposit item link and check item link. The top items to look for as you are scrolling include the following:
Cash withdrawals
Transfers to bank accounts you do not recognize
Wire transfers to bank accounts or for expenses you do not recognize
Credit card payments
If you don’t have a company credit card, why are there credit card payments?
If you have a company credit card, make sure all of the payments listed on your bank statement are being paid on known credit cards. If there is a payment listed, but you can’t find it on the known credit card statements, this is a red flag, and you should consider the recommendations in step 2.
Payroll debit totals
Is this amount higher than expected?
Off-cycle payroll debits
Is payroll is being paid outside of the normal payroll schedule?
Payments to vendors you do not recognize
Step 2: Review Credit Card Statements
If your business uses company credit cards, access the online statements and start reviewing transactions. Before deciding whether or not a charge is “bad,” consider the responsibilities of your bookkeeper or other card users, and base your decision on whether or not a charge benefited the business. With this lens, look for abnormal charges.
Step 3: Find Corroborating Information
If you find anything suspicious from steps one or two, challenge yourself to find another source of information that may confirm or deny your suspicions. For example, if you find a transfer to a bank account for which you were previously unaware existed, contact the bank and obtain a copy of the statements. If you find that this account was being used to process payroll, that is less suspicious than if the bank tells you they can’t provide the statements because the account is not in the name of your business. If the latter is true, this is corroborating information.
Step 4: Don’t Fire Her, and Get Help!
If you do find suspicious transactions from steps 1 and 2, your first instinct might be to fire your bookkeeper, thinking that if you pull her out of the situation then everything will go back to normal. That is NOT the solution! Remember, if your bookkeeper is stealing from you, she has all the information, and she is the best source to discover how the money is being stolen and where it is going. In firing her, you lose the one person with all the answers to your questions.
Your first step after finding suspicious transactions is to call a professional fraud investigator. This professional should be able to review the transactions you’ve discovered and perform data analysis tests to identify any other suspicious transactions. Once this list of transactions is obtained, if it’s within your company policy, the professional can interview the bookkeeper and work to obtain answers. You’d be surprised how often the employee is cooperative in this process; it usually works out best for both of you.
If you think your bookkeeper, or any employee, is stealing money from your business, please reach out to schedule an appointment. It never hurts to talk to a pro about what you’re noticing. To schedule a free consultation with our team, click here.
If you want to learn more about preventing or detecting fraud in your business, check out the following blog posts and podcast episodes!