Many small businesses experience great harm because they do not understand the dangers of a trusted bookkeeper. This article explains why.
So your company has a wonderful bookkeeper, Joan Hardison. Just last week you told your banker, “Joan is so good, I don’t have to even think about my bookkeeping.” But does your trust create potential dangers–some that might be significant?
Is Joan the only person with the password to your bookkeeping software? If yes, why? Oh, she’s trustworthy. I see. But can she control when she dies?
If Joan is hit by a bus and passes from this earth, can you access your bookkeeping information?
If your company has years of bookkeeping information and Joan is the only person with the password, then you may lose it all. Yes, you have the printed copies of your financial statements, but the details of your financial life may be lost forever.
Here’s another threat. Joan becomes angry.
Well, now she intentionally destroys your financial records. In some systems, this is as simple as hitting a delete key. So provide the bookkeeping password to an additional person such as the business owner (if the system does not allow for multiple users). If a bookkeeper leaves, remove that person from the system as soon as possible. Sabotage is an ugly thing.
Also, consider the potential for harm if your bookkeeper is the administrator in your bookkeeping software. He or she controls who gets in and who can’t. It may be wise to make someone other than the bookkeeper the administrator, or–if the system allows–set up two administrators. Main point: Don’t allow one person (the bookkeeper) to control everything.
Additionally, back up your data, or use a cloud service that does this for you.
Oh, and here’s one more danger: Theft.
Many small businesses trust their bookkeeper too much, not reviewing what the person does. This is a recipe for fraud.
If your bookkeeper prints your checks, then she can write checks to herself, can she not? And if she alone reconciles the bank statement, then you really have a problem. She may be the only person that sees cleared checks. If you’re the business owner, you may be thinking, “But I’m the only authorized check signer.” Good luck with that. I’ve seen plenty of forged checks.
As I tell my clients, “Trust your mother but cut the deck.”
Too many small business owners fail to review the work of their bookkeepers, and these businesses often are not audited. Since the bookkeeper knows no one is watching (and that no one will), it’s easy to steal. What’s the solution?
While not a silver bullet, have the bank statements mailed to the small business owner (or someone other than the bookkeeper). Have this person open the bank statements and review the cleared checks. Thereafter, provide the bank statement to the bookkeeper. This simple step can save you. Now, the bookkeeper knows someone is paying attention, and your risk of theft is diminished.
So, if you have a trusted bookkeeper, great! But you still need to do the following:
Go ahead. Lessen the dangers of a trusted bookkeeper. You’ll sleep better.
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Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty years, he has primarily audited governments, nonprofits, and small businesses. He is the author of The Little Book of Local Government Fraud Prevention and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events. Charles is the quality control partner for McNair, McLemore, Middlebrooks & Co. where he provides daily audit and accounting assistance to over 65 CPAs. In addition, he consults with other CPA firms, assisting them with auditing and accounting issues.
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