In The News

A close friend of a Treasure Valley contractor enthusiastically recommended a bookkeeper for the contractor’s open position. The contractor hired her; she was organized, pleasant, and seemed competent.

She stole $30,000 the first month. Later, she bought some real estate from the contractor – using money she stole from him. Over four years, she stole at least $350,000 from the business. After going on maternity leave, it took only a week or two for the new bookkeeper to uncover the theft. The embezzler hadn’t even tried to cover her tracks!

What happened? The bookkeeper was a one person accounting department. The owner was distracted with running the business and paid little attention to the books or the bookkeeper as long as there was cash in the bank. Little did the contractor know, the bookkeeper was opening credit card accounts in the name of the business and maxing out the credit limits with cash advances.

The Association of Certified Fraud Examiners (ACFE) estimates that 5% of revenue is lost each year to workplace fraud. Applied to Idaho GDP, that’s $2.7 billion a year! To the US, it amounts to $766 billion, a few billion more than the defense budget. The contractor is in good company.

Small businesses lost twice as much as large businesses in the ACFE survey. Small businesses are more vulnerable because they have fewer internal controls – no internal auditors, no audit committee, too few people to separate duties so no one controls a transaction from beginning to end. The deck is stacked against small businesses in the matters of fraud risk and asset security.

There are several actions that could have prevented the embezzlement of the contractor’s business, or hastened its discovery. Embezzlement is a crime of opportunity. One person having complete control of the books with little oversight is a perfect storm of opportunity.

Tips: Minimize the opportunity for theft by holding employees accountable. The contractor’s bookkeeper knew no one was looking at the books and didn’t try to hide her misdeeds. Her replacement identified the fraud quickly, which is typical in cases where a business owner provides too much opportunity and too little oversight. If it’s not feasible to separate financial duties so no one controls a transaction from beginning to end, the best control is to routinely check the work of the solo bookkeeper. For example:

1. Review the bank transactions online, or have a duplicate bank statement sent to your home and review it for unusual activity. Make sure check images are included, even if it means paying extra bank fees.
2. If you have company debit or credit cards, review the statements periodically and make sure all charges are legitimate and receipts are attached. (Why would a contractor have credit card charges from a women’s clothing store?)
3. Ask questions about checks, credit card charges and other transactions and make sure you understand the answers. Responding to a simple question with a convoluted answer is a defense mechanism intended to prevent discovery of misdeeds.

Trust. But verify.