Could your accountant be cooking your books?
Did you know that accounting fraud/embezzlement is one of the most common corporate crimes? It’s understandable that many business owners are hesitant to hand their financial information over to someone. And sadly, several of our clients have come to us after a very negative experience with their previous accountant or bookkeeper.
So how do you know if your accountant is honest and has your best interests in mind? Could your accountant be stealing from you? Let’s take a look at some potential red flags that may signal a problem with your accounting.
Does something about your accountant seem off?
It’s a tough economy right now and some people believe desperate times call for desperate measures. Tough times or not, it’s important to check in with your employees regularly to make sure they are doing ok – for their well-being, and for your company’s sake. While you are trying to gauge employee satisfaction and how they’re doing in general, you should also look out for potential red flags with the person managing your books:
- Living above their means: is their lifestyle way out of line with their salary? This could be a major red flag that something is not right.
- Financial hardship: have they mentioned being heavily in debt? While the pandemic has made this common, previous unemployment, legal trouble, and medical bills are other possible causes of serious debt.
- Addiction: one of the most common reasons someone resorts to theft is due to an addiction. Gambling, drinking, prescriptions or other drugs, may be the issue. Watch for potential signs of addiction like:
- Irritability or angry outbursts
- Changes in personality or attitude
- Sudden mood swings
Additional Red Flags:
Defensive when asked simple questions
You pay your bookkeeper to do a job. When you ask basic questions about the results of this, you shouldn’t be met with any kind of hostility. Ask yourself if they get defensive or act like everything is so complicated that you couldn’t understand.
Other warning signs:
- They resist anyone trying to check their work
- They’re reluctant to work with an outside accountant or give up any control
- They are angry or threatened if anyone with a financial focus tries to review/ask questions about the finances, such as a tax specialist or planner.
Late or missing financial reports
Are they regularly late, or not delivering monthly financial statements and reports at all? Are there always excuses on why you are not able to take a look at very basic financial data of your company? These are definitely red flags.
Things aren’t adding up
Another warning sign is if your books show expenses coming out regularly, yet vendors are complaining about not getting paid. This can happen on occasion but are vendors regularly saying this? When you look at your statements, check if expenses are higher than usual, or it looks like some vendors are receiving duplicate payments. These are ways a corrupt employee could disguise payments out of your company.
Consider their access
Of course, you need to give your bookkeeper access to your bank and credit card accounts. But how you do this is extremely important. Do they have a login everyone shares or their own username and password? If they have their own login, what kind of access do they have? It’s always important to monitor your accounts for any strange activity. Consider the following:
- Are they able to make bank transfers for your company?
- Are they asking for signing authority for things they don’t really need?
- Do they have access to a company credit card?
- Are they possessive of information or lack transparency when asked about specific things?
Steps to avoid being taken advantage of
I hope I haven’t scared you away from ever trusting an accountant again! Luckily, most accountants and bookkeepers are trustworthy. Knowing some of the red flags to look out for is the first step in safeguarding your business. Here are other steps to protect your company and yourself from fraudulent behavior:
- Make sure they provide you with monthly financial statements and account reconciliations, and actually look at them! If anything seems off, ask questions
- Monitor your bank account regularly for any strange or unusual transactions
- Separation of duties – make sure there are multiple sets of eyes on basic functions like bill entry and payment
- Outsource your accounting to a reputable firm! Specifically, one with all these previously mentioned measures in place already. (Have I mentioned integrity is one of our core values at Numberwise?) Read on for steps to take to evaluate an accounting firm.
If you are considering outsourcing to an accounting firm, we recommend doing a bit of research to ensure they are trustworthy. Steps you can take include:
- Read reviews on Google, Facebook, etc.
- Have a consultation and ask lots of questions
- Ask for references of current clients
- Check the company’s background for red flags with the appropriate state’s board of accountancy
- Verify an individual CPA license – https://www.aicpa.org/forthepublic/findacpa.html
- Trust your instincts if something seems off
Feel free to leave a comment or contact us if you have any questions. Here are more articles from Numberwise that may interest you: