Multi-Unit Franchisee Magazine Issue II, 2013 | Page 72

Finance
By Steve LeFever

Know Thy Bookkeeper
14 red flags for preventing fraud

I

’ve often heard this comment by
franchisees: “I keep my own books
to save money, but I really hate the
process!” Just as often, I’ve made the
following response: “Business owners/
managers should do what they do best;
focus on making it and selling it.”
If you really do hate bookkeeping (and
I know I do), there’s a predictable outcome:
at 10 p.m. on the last day of the month,
you’ll still have 3 or 4 items you’re not
sure where to put—so you’ll just “shove
them in somewhere.”
After a few months, your books and
records will be riddled with inaccuracies.
Since all of my previous articles have focused on using the powerful tools of Profit
Mastery to make better, more strategic
financial decisions, the lack of accurate
financial information will render these
financial tools useless because the data
you’re using is not accurate. A classic case
of GIGO—garbage in, garbage out.
On the other hand, when you bring
in an outside bookkeeper to keep track of
the financials, you then have another person whose hands are on the flow of funds
through your business. And, although the
likelihood seems remote, there is a chance
they could decide to siphon off some of the
funds for themselves. Yes, fraud.
Remote possibility, you say? I agree.
However, perhaps not for the reasons
you think. I believe the possibilities are
remote for one simple reason: most people
are honest.
However, over the years the thousands
of accountants who have attended my Profit
Mastery sessions have consistently related
the same message that because of inadequate controls, supervision, and separation
of duties, most businesses are exceedingly
vulnerable to fraud; they just haven’t run
into the “dishonest minority.” Yet…

70

Multi-Unit Franchisee Is s ue II, 2013

When you bring
in an outside
bookkeeper,
you then have
another person
whose hands
are on the flow
of funds through
your business.
14 red flags to watch for
So, lest you get too lax, I offer the following checklist as a “bookkeeping fraud
safety net.”
1.-Has your bookkeeper asked for signature authority on your checks?
2.-Does your bookkeeper frequently
make telephone transfers from your bank
accounts or credit lines?
3.-Does your bookkeeper’s lifestyle seem
inconsistent with their earnings?
4.-Does your bookkeeper frequently take
records home to work on, or work in the
office when no one is around? (Fraudulent
activities are more easily accomplished
when no one else is around.)
5.-Does your bookkeeper refuse to go
on vacation?
6.-Does your bookkeeper seem to resent
or get defensive when you or your CPA
ask questions?
7.-Does your bookkeeper have access to
your credit card information and receive
mail-order packages at work?
8.-Are your accounting records a mess?
9.-Do you receive frequent tax delin-

quency notices that the bookkeeper explains
away as government error?
10.-Does your accountant insist on
handling activities for which other departments are normally responsible? These
might include picking up the daily mail
(for fear something could arrive that would
tip off management), acting as the sole
go-between with the company’s financial
contacts (banks, auditors, creditors, etc.),
and working with police when items or
money are missing?
11.-Does your bookkeeper continually
misfile important items such as payroll
receipts, deposit records, supplier correspondence, and estimates?
12.-Do your deposits frequently seem
too small? Owners should always carefully
monitor income and deposits, comparing
sales receipts against actual amounts put
into the bank.
13.-Does your bookkeeper show signs
of a drinking, drug, or gambling problem,
or family financial problems?
14.-Has your bookkeeper suggested
replacing or getting rid of the outside accounting firm, saying they can handle the
duties of the independent accountant and
“save the company the added expense?”
If you answered yes to any of these
questions, don’t panic. Chances are there
is a perfectly reasonable and acceptable
explanation. But don’t ignore the symptom
either. Talk with your CPA and carefully
evaluate the situation. You may only need
to put some additional controls in place.
Fraud or embezzlement can occur
at any point in your operation. So think
about everyone in your organization who
“touches” the flow of funds, services, or
products through your company. And apply
an “edited version” of the above questions
to the situation.
Finally, remember that it’s the victim