Dealing with Fraud – What to Do if your Bookkeeper is Stealing (+Warning Signs and Prevention)

When your bookkeeper is the perpetrator, detecting illegal activity can be tricky since they have the expertise and skill to alter your financial records and books. The effect of embezzlement is detrimental to any business. You surely do not want yours to be next.

What is Embezzlement?

Embezzlement is a type of fraud that involves stealing through deceptive commercial activities. In embezzlement situations, the offender has a legal right to the property but takes or appropriates it by fraudulent means, such as a bookkeeper or someone in a position of trust who has access to bank accounts and fraudulently transfers money to his or her account.

Why Do Employees Steal?

1. Financial Difficulties

Employees who commit fraud are frequently motivated by stress or emotional strain, which drives them to commit the act. This is usually triggered by financial crises brought about but lifestyle choices.

Overspending

Luxuries aren't wrong if one can afford them. People sometimes live beyond their means, and that can spell trouble.

Insurmountable Debt

Drug addiction, divorce, gambling, and other circumstances can all lead to unexpected debt and financial issues.

Overspending and accumulating large amounts of debt are prevalent, bringing financial hardship and psychological anguish, and can affect people. Factors like these usually lead them to risk committing the fraudulent act of embezzlement.

2. Lack of Internal Control and Separation of Duties

Leaving your bookkeeper in charge of all financial data entry, financial reporting and full access to money can save you from other costs but can also be detrimental.

Giving your bookkeeper the authority to perform transactions on your account via internet banking or in person and complete control to determine who has access to financial information can sometimes have dire consequences.

It makes it easy for an employee to steal from the company if Internal Control measures are not implemented, reporting is neglected, and only one person handles the finances. These circumstances indicate a lack of separation of roles. Separation of roles is a typical and challenging problem in small businesses. These criteria, however, do not show that your bookkeeper is stealing; they only make it very simple for that individual to commit the act.

Pay Attention to Warning Signs

Anyone may be a potential threat to your firm, whether a junior or senior employee, a woman or a male, or young or elderly. Look for tell-tale indicators if you suspect your bookkeeper or manager is stealing. These warning signs may be sufficient grounds to keep a closer eye on your books.

1. Behavioural Changes

Suppose your bookkeeper, manager, or any other person with private access to the company's records, products, or property exhibits behavioural changes (coming to work for longer hours than usual, including weekends and vacation times). In that case, it's crucial to pay attention.

2. Control Issues

You may discover that your bookkeeper wants to oversee all financial management duties and wants to have complete control.

Here are some red flags you need to watch out for:

The bookkeeper resists granting outside access to the finances, such as bringing in consultants, switching payroll providers, employing an audit company, etc.

There are difficulties in obtaining financial information from the bookkeeper and receiving confusing and ambiguous reports.

Obtaining a bank statement from the bookkeeper is complex, and your company no longer receives them in the mail.

You encounter complaints regarding late payments and fees, missing payments, and other financial issues.

Preventive Measures

1. Internal Controls

Businesses can reduce the risk of fraudulent activity is to ensuring that internal control measures are in place. Job duties must be separated.

No system of internal controls can eliminate the risk of fraud. What it can do, though, is that it makes it difficult for employees to steal, and it can increase the odds that they get caught quickly, thus reducing the risks to a minimum.

2. Separation of Duties

The principle of separation of duties is the cornerstone of a solid internal control system which involves segregating the critical duties into the three primary accounting and bookkeeping functions. The roles must be well-defined and divided with thorough detail.

3. Limited Access

Never give everyone full administrator rights, share logins and passwords, or give accounts to employees without need. One of the most effective strategies to avoid embezzlement is restricting a bookkeeper's access to signature stamps, blank checks, and cash.

4. Cross-Checks and Audits

A good safeguard against fraud is to require counter-signatures on all checks. Conducting surprise audits regularly can also assist in discovering or preventing theft.

5. Systematised Tools

Many business owners are looking for fraud prevention strategies that are cost-efficient. Various accounting software can help reduce the risk of fraud, which can provide another obstacle to fraudulent activity.

Businesses using accounting software should dedicate time to set it up correctly. Ensure the set-up process is not rushed and these critical safeguards are monitored.

6. Outsourcing

Outsourcing your bookkeeping, accounting, and control operations to an experienced and reputable team of professionals is one of the most effective strategies to lower your risk of fraud. As a result, the risks associated with a lack of internal controls are eliminated, and every transaction is reviewed for correctness.

The more people you oversee your books, the more difficult it is to commit fraud. It also provides a significant amount of protection and peace of mind.

Get Professional Help

Transition to a dedicated team of professionals with the expertise to implement an intelligent back office for your business.

Target Accounting in New Zealand possesses decades of experience and the expertise to flag irregularities as soon as they arise. Learn how our Accounting and Business Advisory Team can protect you against fraud and deliver timely and accurate financial information.

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