Duvall & Associates, Inc.
BUSINESS ADVISOR NEWSLETTER
 

Owners, keep a close eye on bookkeepers

- by Alan Duvall 

Published in Dayton Daily News April 9, 2006  

Realistically, most owners grievously abhor bookkeeping and paper-laden administrative tasks. 

As a result, owners tend to place excessive administrative responsibilities upon the shoulders of subordinate bookkeepers and office managers.  To their utter dismay, these same employees often repay this trusting delegation by embezzling funds from the company.

Fact: It is not always bad people people who steal.  It is simply individuals with an opportunity who lack the resolve to resist the temptation.  

True story: A controller of a small business issued a $250,000 company check to himself for use as an immediate down payment on a new family residence.  His fraud was discovered days later while he was gambling in Vegas with the owner. 

Employee embezzlement situations display amazingly consistent patterns in terms of timing and dollar amounts.  Typically, the worker initially embezzles in very small amounts over a long period of time.  Eventually, the behavior snowballs when they realize no one is watching.  Fortunately, owners are often presented with numerous clues about suspicious activity.

Some warning signs are:  If financial records are messy and statements are not presented on a timely basis.  Key financial indicators and trends are not logical and account detail does not match numbers on financial statements.  There are unexpected cash short-falls.  A key employee may be experiencing emotional and monetary crises.

To ameliorate the potential impact of employee embezzlement, owners must institute visible layers of internal financial controls.  The overall objective is to demonstrate work product is subject to constant supervisory review such that it would require a multi-person conspiracy to successfully perpetrate theft.  Owners should be an active part of the system clearly conveying the image they are paying attention.  A healthy segregation of critical duties is essential.  Take care with signature stamps.  Checks (with relevant invoices attached) should only be signed by carefully monitored personnel.  Conduct spot audits and study financial trends and ratios. 

Interestingly, an owner’s personal integrity is also relevant in this regard.  Many workers steal from owners whom they perceive unethical, justifying such actions on the basis “he deserved it”. 

Alan Duvall is a certified public accountant in Dayton.  Contact him at Alan@Duvallcpa.com.