Updated: Dec 6, 2022
Protecting your business finances is important. The purpose of this Financial Protection Toolkit series is to give any business owner the ability to implement key internal controls to ratchet up their risk protection to a whole new level. In this post we are focusing in on the power of observation and identify red flags in the behavior of your accounting staff; for most of you reading this article – that is your bookkeeper.
Monitor Bookkeeper Behavior for Red Flags
Prior to this point, we have covered eight controls you can implement in your business. Each of these controls builds upon the others, so that when implemented together, the likelihood of theft within your business is reduced significantly. Monitoring behavior proves most valuable in the absence of proper internal controls. Unfortunately, it isn’t a good situation in which to find yourself as a business owner.
The red flags we cover below are important to observe in all employees but is even more so when observed in bookkeepers. Why? Bookkeepers generally have direct access to sensitive financial information and funds, making the risk of embezzlement much higher.
Below are red flags to watch for in your bookkeeper’s behavior. Keep in mind you’re looking more for changed behavior, as opposed to the behavior itself. One red flag is not always cause for concern; if you find more, the indication of a problem is much stronger.
Possessiveness – If your bookkeeper insists on working alone, you likely have a problem. Are they belligerent when faced with the “threat” of help; that’s a red flag. If you insist on the help, watch carefully how this process is executed. We have seen “ghosting” and passive-aggressive behavior used to frustrate the help provided.
Long (and often odd) work hours – As business owners, we applaud when an employee puts in extra effort – especially if they’re willing to work odd hours to keep the wheels turning. When it comes to your bookkeeper, though, does that role really require the extra time? It shouldn’t.
Never takes time off – We just covered this in the last post. It's a big one. Check it out here.
Dissatisfaction at work – In your interactions with your bookkeeper and other employees, do you all sense a disgruntled attitude or sense of unrecognized entitlement. This thought process drives more than 50% of embezzlements exceeding $1 million.
Signs of addiction – If you start to see issues here with your bookkeeper, it’s something to be concerned about. Addictions often require additional resources to finance them, creating financial pressure to steal.
Financial pressures at home – When faced with a static income and increased debt or unusual expenses, company coffers can be tested. Most embezzlements begin small to cover these types of situations with no intent to keep going. Unfortunately, if not caught, they rarely stop and the amounts grow.
Unexplained extravagance – Many embezzlements have been discovered because the person involved was living large – unusually so. The interesting thing is it is often discovered by another employee in the business. They are always watching; something to remember!
Here are some helpful actions to take if you see more than one behavioral red flag and suspect embezzlement:
First, call your lawyer. They should be able to help direct you to next steps.
Keep your emotions in check and act normally. Do not alert your employees. Do not make any banking or internal control changes. This will alert your bookkeeper to stop or flee.
Secure outside advisors who have experience investigating employee theft. Allow them to work outside normal hours to determine the scope of any embezzlement and cue you when it is time to alert authorities.
You will be tempted to handle this all on your own, but your best bet at recovering any losses will likely be lost should you try. Given most of us are not experienced with catching thieves or the nuances of financial embezzlement schemes, you are far more likely to tip off the perpetrator well before you figure things out. It is a dicey game, so best to let experienced professionals work quietly to secure your best recovery.
To the extent you find no red flags and have not implemented other internal controls, count yourself lucky. Then get busy implementing controls in your business to reduce your future risk. The risk of fraud abounds in an environment with no controls. Protect your business, your bookkeeper and yourself by getting started today!
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