• Cheryl VanFosson

Small Business Owners Beware! Do you really know who you hired to handle your accounting?

Would you hire a thief to handle your business’ bookkeeping and accounting? Of course not! However, that is what many small business owners are unknowingly doing. It is customary to do background and reference checks before hiring employees, so why wouldn’t businesses also do this when subcontracting someone to handle their finances?

Sure, it takes a little extra time and you may worry the person you are planning to hire will feel mistrusted. However, this step is vital! Trust me, a reputable and honest bookkeeper is going to respect that you are doing your due diligence and will feel more comfortable working with you, knowing you take appropriate precautions with your business’ finances.The only people that may come across as offended are most likely the very ones you do not want to hire.

I recently did a free consult with a business owner and found out he had previously hired a bookkeeper, whom a few years earlier, I caught committing check fraud and had stolen nearly $20,000 from the company we worked for at the time! He had hired her to do his accounting, plus gave her a business credit card, his business’ bank account numbers and online logins! Worst yet, he knew of another company that hired her as well!

If that hasn't convinced you to check references first, let me share this startling statistic with you:

The ACFE 2018 Report to the Nations Global Study on Fraud and Abuse revealed private companies and small businesses reported 42% more cases of occupational fraud compared to large corporations, governments, and non-profits. Private companies & small businesses have a median loss of $164,000 per year due to occupational fraud!

Why are smaller companies losing more money to fraud? I believe the 2 primary explanations are:

1. Smaller companies often lack proper internal controls & anti-fraud policies. Additionally, if you only have one individual handling all of the company’s finances, you lose the ability to have a separation of duties, making fraud detection more difficult.

2. Smaller companies are more likely to outsource bookkeeping and are not doing the typical reference and background checks they do with employees.

I am shocked at how many business owners do NOT check for references!

Now I don’t want you to panic and try to do all of the bookkeeping yourself out of fear. Fortunately, a majority of accounting and bookkeeping professionals are trustworthy.

Here are some steps you can take to safeguard your assets:

1. Get References. Ask for at least 3 reputable professional & personal references and ask very specific questions when you contact them. Also, run a background check. Had the business owner, I previously mentioned, ran a background check on the bookkeeper before hiring her, he would've found a police report against her.

2. Get Expert Help. Have a different CPA or accounting firm look over your books to check for any signs of fraud. I suggest doing this 60 - 90 days after hiring your new bookkeeper. They can also advise you on additional internal control/anti-fraud policies. If you haven’t done this, do it now and don’t wait until tax time. Yes, it is an extra cost, but it is a minuscule cost that could potentially save you thousands.

3. Get a Credit Monitoring Subscription. If you are a sole proprietor or single-member LLC filing taxes under your social security, you’ll only need it for yourself. However, get the monitoring for your business as well if it has an EIN. Experian has a great monitoring service which covers all 3 credit bureaus for around $30 a month.

4. Don’t Give the Bookkeeper More Information than Necessary. Never give a bookkeeper or accountant check signing authority. Also, if avoidable, don’t give them account numbers. Some accounting software, such as QuickBooks Online, is designed so the bookkeeper/accountant never has to know any account numbers in order to do their job. This keeps your business secure.

If you already hired someone and didn’t do your due diligence, here is what you can do now:

1. Ask for References. If you don’t feel you will offend or create an uncomfortable situation by suddenly asking your bookkeeper to provide references & a background check, then go for it. However, doing this after the fact, may cause them to feel distrusted and you don’t want that, especially since they are most likely trustworthy.

2. Trust Your Instincts. The guy I previously mentioned, whom hired the fraudulent bookkeeper, started off by telling me that something seemed off about his current bookkeeper and he just wasn’t comfortable with her. His instincts were right! Trust your gut!

3. Do a Credit Check on Your Business. It is possible, if the bookkeeper has enough of your business information, he/she can take out a loan or credit card in your business’ name and forge your signature without you knowing. Also, get a credit monitoring subscription for your business.

4. Review Your Bank Accounts and Books:

a. Look at your cleared checks. If you don’t already get these from your bank, order them even if it costs you a little extra each month. Make sure they are made payable to vendors you know and for expenses you approved to be paid. Also, this is really important… check the back of the checks to make sure none have been signed over to someone other than the intended recipient. Look to see if the signature is followed by “payable to” with a different name & signature or an account number with initials which do not match the payee of the check. If the account number or initials match your bookkeeper’s, this is indicative of the bookkeeper forging and then signing the check over to themselves.

b. Review your check register. In your accounting software, look closely over the last couple months of expenditures to make sure they look legit. It is also worth spot-checking transactions for the past year. Make sure your accounts have been reconciled to the books recently and look into transactions that are old but haven’t cleared the bank.

c. Become familiar with your accounting software. Ask your bookkeeper to teach you and watch videos online to help you learn the basics. Your bookkeeper may fear you are questioning his/her work or about to fire him/her. Therefore, explain that you want to learn so you can make better financial decisions for the company. Also, you can mention that it would be helpful for you to know the basics in case he/she becomes unavailable due to sickness or vacation.

Lastly, if you hire an accountant or bookkeeper using QuickBooks, make sure they have earned the QuickBooks Pro-Advisor certification. You can check for certification here:

This will give you additional assurance that you are hiring someone knowledgeable about accounting and QuickBooks, since they must pass a test to become certified. An accounting degree is also a plus; just expect to pay more based on the level of education and experience. Spending more to hire a better qualified bookkeeper or accountant will typically save you more in the long run.

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