Small business owners can end up paying a high price for neglecting to pay attention to their company’s finances. The typical scenario is the busy business person who turns the banking and accounting over to a bookkeeper, and then fails to keep an eye on what’s going on. After a while they begin to notice that no matter how hard they work, the company never seems to have enough cash. The reason of course is that their trusted bookkeeper is not so trustworthy.

The financial fraud statistics are grim. There are estimates that employee theft is growing at 15% per year and that as many as 40% of small companies are victims of embezzlement.  Estimates suggest that one third of bankruptcies and 20% of business failures are the result of employee theft.

Prevention is not difficult. Taking a few simple steps not only pays off in terms of protecting your assets, but it also does your employees a favor by removing opportunities to steal that might be a temptation to them.  Here a few ways to cut the risks of financial fraud and embezzlement in your company.

A key step is the hiring process. When hiring accounting and bookkeeping personnel it is critical to know as much as possible about them before you hand them the keys to the treasury. This should include checking references and talking with old employers. A comprehensive background check is also an excellent, cost effective way to protect your company.

A second easy step is to require your bookkeeper to take a vacation periodically. Often issues come to light when an embezzler is not on hand to intercept incriminating documents or smooth over other discrepancies.

The most important step is to segregate responsibilities. Don’t allow the same person who makes deposits to also record the transactions in the accounting records, and reconcile the bank account. Lack of segregation increases the possibility of fraud and the likelihood of honest accounting errors and omissions will not be detected.

Finally business owners need to look at the financial data of their company periodically. At a minimum they should review monthly bank statements, scan check registers, and look over a profit or loss statement. If they see something that is unexpected or unusual, they should follow up with some questions and analysis.

Stephen Ashby CPA

The Billups Company CPA’s Inc.

www.billupscpa.com