Many times, small businesses do not have the resources to properly segregate accounting duties to multiple employees. In many small businesses, there is only one person who handles all of the bookkeeping/accounting functions within the business. This person is most often an employee (assuming the business has more than one employee).
If your business has several employees, but only one person works in the accounting department, your business might be at risk for employee theft, embezzlement, fraud, and many other types of "white collar" crimes. This is especially true if the business owner NEVER looks at what the "bookkeeper" is doing. Even if an outside accounting firm is used (for financial statements and/or income tax preparation), the outside accountant might not catch possible problems, including employee theft, fraud, etc.
I had a client many years ago who had a bookkeeper that was robbing the company in many ways, and the owner was unaware of what was going on for almost 4 years. The business owner had noticed that annual sales were dropping each year over this four year period, but had no idea why. The business owner had no idea that he was paying for inventory that was never "received," or that he was paying for more cell phones than he actually was using in his business.
The bookkeeper that had been hired was actually purchasing products (from vendors), and had another employee in the company receive the products that were shipped, but the employee and the bookkeeper were recording approximately 60 percent of the products purchased into inventory. The rest were being set aside (and put into the employee's vehicle). The "stolen" products were then sold to the customers of the business for steeply discounted prices, thus causing these customers to no longer purchase from the business (but from the employee and bookkeeper).
The bookkeeper had a friend who worked for a competitor. The bookkeeper and her friend got together and decided to add a cell phone to the business cell phone account, with the friend getting the cell phone with the company (the bookkeeper worked for) paying the bill.
This went on for about 4 years before the owner of the business found out what was going on. The business owner happened to walk past the bookkeeper's desk one day and saw the cell phone bill on her desk. He glanced at the bill and saw that he was paying for 7 cell phones. He knew there should have only been 6 cell phones on the bill - one for himself, and one for each of his 5 service employees.
The business owner confronted the bookkeeper regarding the additional phone on the cell phone bill. She denied any knowledge about the additional phone charges. She told the business owner she would take care of it. She never intended to "take care of" the matter. After several months, the business owner asked to see the current cell phone bill. He saw that nothing had been done about it.
The business owner contacted the cell phone provider and asked that the additional phone be removed from the account. He was told he did not have the authority to remove the phone from the account. The business owner became furious at this, stating that he was the owner of the business, and that he was the only person in the business that had the authority to add or remove cell phones to the account.
The business owner, after further investigation, discovered that the bookkeeper had also been ordering more products than what had been received into inventory. (The business owner never took inventory, annually or otherwise.) The business owner attempted to get to the bottom of the fraud and theft.
In the end, the bookkeeper destroyed all evidence, including all computer records and hard copies of vendor invoices, etc., that could be used to prosecute her. She was fired, but the business owner was not able to prosecute her or the other employees that were working with her.
The business owner fired the bookkeeper, and all other employees. He hired new employees, but never hired an internal bookkeeper. He changed cell phone vendors. He contacted all of his vendors and asked to be put on COD terms, which meant that payment had to be made when products were purchased. He (the business owner) started making all purchases (although the employees would pick up the products). The business owner at least knew what was being purchased from that point forward.
The accountant could not be blamed because the bookkeeper was the only contact the accountant had at the company, outside of the business owner signing various tax returns (which were mailed to the business address). The business owner never really had any contact with the accountant except by phone at tax time.
What am I trying to say here? The business owner needs to keep an eye on what is going on in his/her business. It is very easy for employee theft and fraud to take place if no-one is paying attention.
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