“Trust too much?”
At first this may seem like an odd statement: DON’T trust your bookkeeper too much! Accountants, and I am one, are usually stating the importance of accounting, so why would I even say this?
Yes, I think accounting is critical in business. Knowledge is power. But I am not talking about accounting. I am talking about the person that does accounting. I am talking about protecting your small business and I’m saying: Don’t put blind trust in to one person doing the bookkeeping or accounting.
The first job I had in the accounting field was with a large CPA firm. I was one of “those” accountants that would audit companies. And many times, the first thing our audit team did was look at the responsibilities of employees. I learned early on the concept of Internal Controls.
In looking at Internal Controls, we asked: are there procedures to deter errors, fraud, and theft.
Let’s talk about some internal controls you can put in place in your small business to deter errors, fraud, and theft.
In the accounting area, you NEED to separate some key duties.
Larger companies have a benefit when creating needed procedures such as separating key duties because they have more staff. For small businesses, it is tougher. In small businesses, it is common to have one employee do many tasks … or all the accounting tasks.
But this is NOT GOOD.
There are things you can . . . and should . . . think about. There are some tasks you need to separate in order to safeguard your business.
Bookkeeper shouldn’t have all the power
Here are some areas to seriously consider separating duties.
The bookkeeper who invoices clients should NOT handle deposits
- Why? They could keep the money and delete the invoice from the accounting records.
- The books would then show the customer was never invoiced and the money was never received.
The bookkeeper who pays the bills should not reconcile the bank statement
- Why? They have access to check writing. That’s some power. They shouldn’t be the one “verifying their own work”.
- If there are no other set of eyes, fraud is easier. They have access to blank checks!
- In addition to having someone else reconcile bank statements, consider tracking checks and not giving away endless access to blank checks.
The bookkeeper who records accounting info should not open mail
- I know. This is a tough one. But have someone see the deposits first.
- Have someone see the bills — are they past due and not being paid.
Few more tips to protect your business
The bookkeeper should not be the only one with passwords
- An upset bookkeeper who leaves, may do ugly things if mad. Protect yourself.
- Someone other than the bookkeeper should have passwords and access — like you, the owner.
- Also, a bookkeeper on vacation or sick can cause issues if someone else doesn’t know the passwords.
- And make sure the accounting software is backed up.
- P.S. If a bookkeeper is very protective of the books and acts like they know more than you, the owner, this can be concerning.
Create procedures upfront
- Set up the procedures before you hire the bookkeeper.
- It’s easier to explain procedures upfront than to give endless power and take it back.
- But if the bookkeeper is already there, take back some of the power in order to protect your business. Better safe than sorry.
There is hope. Either you, the owner, need to do the additional work or you need to involve another employee or outsource help.
I always vote for starting with you, the owner, to do something because it’s your business and no one will care as much about your business as you do. Protect your business.
One of my clients deposits the check receipts herself. I do some accounting and bank reconciliations, but she also does some bookkeeping. We talk about the future and the possibility of her delegating some bookkeeping tasks that she currently does to her future employees or my firm. But, I’ve said: “Keep a close eye on your checks written and deposits. Sign all the checks and make all the deposits yourself and let’s think carefully before you delegate any of that”.
If you, the owner, don’t want to do accounting
Yes, another hope is involving a second or more employees for double checks. Or, you can outsource accounting help. Many times small businesses don’t want to hear about these solutions because it costs money. But with planning, you can reduce the money spent — and it will be worth spending if it protects you.
Someone to double-check
Yes, you can involve other employees, but at some point you should have an accountant get involved. If you can’t hire a higher level accountant, an outsourced accountant can do the bank reconciliations, some higher level accounting, and other double-checks. If you look to outsourcing to an accounting pro as a second set of eyes, consider a CPA for out-sourcing — they have a licensing board to report to.
Don’t Trust Too Much
Yes, if you choose to hire an in-house bookkeeper, hire one you think you can trust. But . . . don’t give EVERY accounting task to one bookkeeper. Don’t trust them too much.