Diary of a Bad, Bad Bookkeeper: A Warning Sign

Betty Bookkeeper Headshot

Dear Diary,

Betty Bookkeeper HeadshotToday sucked… and I mean, straight up sucked.

There I was, minding my own business, when in walks the boss with a receipt. On the receipt are stamped the letters C.O.D. It was from one of our vendors that apparently hasn’t been paid in so long, they’ve changed our account from credit to C.O.D.

“What is this, Betty?” the boss asked me. “Why has ABC Hardware turned our credit account into a Cash-on-Delivery account? I’ve been with them for five years, and they’re saying we’re three months behind in our payments. I told Bill – the boss over there – that it can’t be right. We’ve never missed a payment with them, but their bookkeeper swears we’re late. What’s going on?”

I looked at him as innocently as I could, and shrugged. “It has to be a mistake, Boss. I’m certain we’re current.”

“Can you call them and fix this, please?”

“Sure. No problem.”

Then, the boss practically tosses the bill at me and storms out of my office.

I picked up the phone line, figuring he’d probably be watching the extension from his office to make sure I called, but I didn’t bother dialing the number right away. I knew the truth – we were behind. I should have made that payment a while ago, but I knew if I sent it, the checking account would go in the hole. Since I wasn’t quite sure how far behind we were, I figured I’d better check.

Typing a few things into the computer, I saw that we were about $1,200 behind. That wasn’t too bad. So I did actually call the bookkeeper over at ABC Hardware. When she got on the phone, I said, “Hey, Jane. How’s it going?”

“Betty,” she said coldly.

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A few choice words ran through my head, but of course I kept them to myself. “Listen, Jane. I just got reamed by my boss about some notice he got from your company. He said you made our account a C.O.D. account. What’s up with that?”

“Well, Betty, you’re company’s late in paying us. And it’s not the first time.”

“Well, Jane… I just mailed a check for $1,200 a couple days ago. Have you checked your mail today?”

“’The check’s in the mail?’ Really, Betty? You’ve used that one before. And then we never got the check. So my boss decided to make your account C.O.D. from now on. Besides, you owe us $3,100 – not $1,200.”

No kidding. “Are you sure about that? I only have invoices for $1,200.”

“I’m sure. In fact, I emailed you and faxed you hard copies of the invoices several times over the last couple months.”

The temptation to hang up on her was irresistible, but I didn’t. “Well, I’m sorry, but I don’t know what happened to the invoices. And I did send you $1,200 just a couple days ago. So, what’s it going to take to forget this whole C.O.D. thing?”

“If you want the account to revert back to a credit account, you need to pay the balance in full immediately. That’s the only way.”

“Okay. I can do that. I’ll put a check in the mail today.”

“No, that’s alright. I’ll come and pick it up.”

Of course you will, you snotty… “Okie dokie. How about five o’ clock? I can have a check for you by then.” And the boss will be gone by four, so he’ll never see the real balance due.

“Fine, see you at five.” Then, she actually hung up on me.

Long story short, I had to scramble and figure out a way to pay $3,100 without letting the boss know what was going on. It took me a bit, but I finally figured out that I could write a balance transfer check from one of the new credit cards I opened in the company’s name…a credit card that goes to the Company P.O. Box the boss doesn’t know about.

I told the boss it was just a misunderstanding, and that Jane actually found our payment in the mail that day…so there should be no problem from now on. The boss went back to thinking I’m a genius, and Jane showed up at 4:45 – Eager twit.

All I have to say now is: Man, that was a close call!

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Why This is a Warning Sign

superhero_edited_no_maskA lot of small business owners don’t realize it, but when a credit account is changed to a C.O.D. account, that’s usually a BIG warning sign that “the business is suffering”. (Notice, I’m NOT saying anyone’s embezzling…this is quite simply a sign that the business needs to handle their finances better, and possibly their cash better as well.) Most vendors that offer credit to their preferred clients are loathe to take that line of credit away if it means they might lose a business as a customer. Usually, the only reason a vendor would change a credit account is if there is a history of serious delinquency or bounced checks. So the minute any vendor demands a COD payment, realize that your company’s credit history is on shaky ground and become proactive.

How to Know for Sure

Should the above scenario happen to your company, don’t go running to your bookkeeper first. Instead, ask the bookkeeper at your vendor’s company to print up a Statement of at least 90 days to 6 months so that you have a record of EXACTLY how your bookkeeper has been paying them. Look it over and take note of how far apart the payments are. Are there any amounts that were subtracted and added back on? (That could be the sign of a bounced check.) Most credit accounts require a minimum of one payment a month, while some require more. Ask the other bookkeeper what the terms are for your company, and THEN approach your bookkeeper.

Before you make any accusations, however, there is one more thing you can do to double check your bookkeeper. When you have the Vendor’s Statement for your company in hand, ask your bookkeeper for the last three bank statements. Also, ask for a “Check Detail” listing all of the checks for the same three months. A good bookkeeper will know exactly where those bank statements are and will be able to give you both documents in less than 10 minutes. (The key is to ask for this information immediately and DO NOT let your bookkeeper put you off ‘til the end of the day…they can cover their tracks if given too much time.) Then, when you have the Vendor Statement, the Check Detail, and the Bank Statements in your hand, do a quick check for the following:

  • Highlight the check numbers listed on your Vendor Statement.
  • Find the corresponding check numbers on your Check Detail printout. From here, you will be able to tell exactly when the check was supposed to have been printed and then mailed. The dates should be a week apart if the vendor is in town…up to 10 days if the vendor. (Of course, the time it takes to cash a check also depends on how big the vendor is.)
  • Now check the bank statements for the same check numbers. Do the dollar amounts actually match, and when were the checks cashed? Sometimes, the other company may hold onto the check for any number of reasons, but it will give you a good idea of how long the check cashing process takes with THAT particular vendor…and how long your bookkeeper may be holding checks.

Your Bookkeeper May Be Embezzling if…

Now, before I tell you exactly what to look for as far as embezzling goes, let me just say one thing. This does NOT 100% mean that your bookkeeper is embezzling. There can be reasons for any discrepancies you find. However, if you do find the following discrepancies, don’t be stupid and sit on your hands either. Ask an accountant or an independent bookkeeping company for help immediately. Make a backup of your bookkeeping program without the bookkeeper’s knowledge, and put that aside…(you may need it later).

And whatever else you do… DO NOT…I repeat… DO NOT confront your bookkeeper with what you find. If your bookkeeper IS an embezzler, the MINUTE you accuse them of anything, they will WIPE their hard drive, and your bookkeeping program, and they will destroy any evidence of embezzlement you may have in your office. Be certain first, and then do a cold hard lockout. The minute you KNOW – without a doubt – that they’re embezzling, DO NOT let them back in the office, and disconnect the bookkeeping computer from the internet. (You don’t want them logging on remotely to destroy your bookkeeping program.)

  • To know if your bookkeeper might be embezzling, look at the Check Run and look at the Bank Statements. Do the check numbers and amounts match? Bookkeepers can always go in and change the check names and amounts later on (which they will do if they want to show the boss an inflated bank balance), but the Bank Statements will give them away every time.
  • Another thing to pay attention to…are the checks being cashed months after they were written? If they are, then your bookkeeper was sitting on them for some reason (probably to make sure they didn’t bounce)…but keep in mind, YOU may have told your bookkeeper to hold those checks. That happens a lot, so don’t make any accusations unless you’re sure you did NOT ask the checks to be held.

Again, this is just a warning sign, but it’s a good sign to look for. Do not ignore it.

 

Diary of a Bad, Bad Bookkeeper: Deletions and Voids

Betty Bookkeeper Headshot

Dear Diary,

Let me just premise this entry by saying — crap crap crap crap crap.

I got a phone call from the accountant today.  It’s tax time, and the accountant wants to meet with me to go over the books.  Since I’ve never worked with this accountant before, I have no idea how closely they are going to want to look at the books.  I can’t help but fear that the accountant is going to figure out what I’ve been doing if he looks too closely at the books.  So I was in full blown panic mode all day.Betty Bookkeeper Headshot

So after thinking about it, I did what I could today to clean up the books.

I started by voiding out some of the checks and deposits that I had made, hoping that would be enough.  But then, when I realized that the checks were recording in the check register as “voided checks”, I had to rethink that strategy.

My solution:  I began deleting the checks and deposits instead.  That way, they disappear completely from all registers.

But then another problem popped up.  By deleting the checks and deposits, the bank balance began to change.  So, I went back and made sure to delete just enough to keep the balance close to what the original balance was.  Hopefully, it will be enough to fool the accountant.

Hopefully the accountant is a fool…

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How to Spot This Problem:

superhero_edited_no_maskWhether you have a good bookkeeper or a bad bookkeeper, deletions and voids are always a part of bookkeeping.  Mistakes happen and bookkeepers have to find and correct those mistakes to make sure their books balance.  One of the biggest benefits and downfalls of various bookkeeping programs like QuickBooks (especially QuickBooks) is that many of the programs make it really, really, really easy to do voids and deletions.  In fact, just doing a “Ctrl + D” while in any facet of QuickBooks will instantly delete that item.

Having said that…let me point out that bad bookkeepers will do an excessive amount of deletions, especially after reconciling the bank accounts.  Finding those deletions and voids are an excellent way to know if there is a problem with your bookkeeper.

While I am not familiar with EVERY bookkeeping program, I do know QuickBooks.  And if you have QuickBooks, it is very, very easy to find those deletions and voids.

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QUICK NOTE:  Now if you do suspect your bookkeeper of embezzling, the easiest thing to do would be to take a previous backup and “Restore It” to your QuickBooks program.  By doing this, you wipe out any and all changes that might have been made.  This is NOT a good idea if you want to know what your bookkeeper might have changed.  Instead, make a backup copy of the current program before restoring anything else, that way you can always go back and look more closely at any changes that have been made.

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Now, if you do have QuickBooks, finding these deletions are super easy.  All you have to do is go to Banking – Reconcile.  By doing so, you will then see a screen like this one with a “Locate Discrepancies” button:

By clicking on “Locate Discrepancies”, you can see ALL CHANGES THAT HAVE BEEN MADE SINCE THE LAST BANK RECONCILIATION.  If the account has never been reconciled, then nothing will appear here, which indicates a whole other set of problems.  If the account has been reconciled, you can find a list of every change that has been made and what the change was SINCE THE LAST RECONCILIATION.

After you have your list, simply “Undo (the) Last Reconciliation” to see what deletions were made in the reconciliation period before that.  You can keep doing this all the way to the very first reconciliation, and thus get a a fantastic picture of what has been deleted, voided and changed without your knowledge and after the reconciliation.  Remember… excessive deletions, voids and changes can mean that there is a problem with the bookkeeper…not necessarily that they are embezzlers so much as that they make a lot of mistakes.  But again, keep in mind that all bookkeeping has a certain amount of small mistakes that are caught every month when the reconciliations are done.

Diary of a Bad, Bad Bookkeeper (Day 112) – Theft by Signature Stamp

Betty Bookkeeper Headshot

Dear Diary,

Today the boss went on vacation and guess what he gave me…the Signature Stamp.  I couldn’t believe it when he handed it to me.  I think my smile was from ear-to-ear.  Doesn’t he realize how stupid it is to give me the signature stamp?

“Are you sure you want to give this to me?” I asked all innocent like.  In the back of my mind, I was already calculating how much money I might be able to get now that I had this new stamp.

“Of course.  I trust you,” he told me with an amused little smirk.

That smirk told me everything I needed to know.  My question had just convinced him that I was the sweet innocent young lady he had come to know so well.  Because – fool that he was – he sincerely believed that everyone was as open and honest as he was.

I almost felt bad about stealing from him.  Almost.  But then I would remember that I was making less money than everyone else in his company…everyone except the receptionist.

“I don’t know.  That’s a lot of responsibility,” I commented in the best hemming-and-hawing voice I could manage.  “I really don’t want to let you down.”

“It’ll be fine,” he assured me with a light pat on my shoulder.

Then he strolled out of my office.  An hour later, he left the office for good.  He was off to the Caribbean for the next two weeks.

I waited an hour after he left just to make sure he wasn’t coming back.

And then…

Over the next week…

  • I signed some IRS paperwork with that signature stamp.  Whether or not the IRS paperwork is accurate…?  Who cares.  At least it’s filed.
  • I opened a new cell phone account with his signature stamp…got the “Unlimited Text and Talk” package…for my whole family.  My daughter may only be 8, but she loves her pretty new pink cell phone.  And of course, I love my new iPhone.
  • I also got a new Business Gas Card Account.
  • I downloaded a new bank account application from online, signed it with his signature stamp and faxed the paperwork back .  Got instant approval.
  • I sent out several applications to local vendors to get lines of credit.  They all got approved.  I now own a chainsaw from the local hardware store (because I can), an electric lawnmower from Lowes, solar panels for the garden from the local garden supply store, and $300 window blinds from Home Depot.
  • I ordered a bunch of magazine subscriptions in his name and sent them to my house.  (I really love Cosmo.)
  • I walked into Office Depot and paid for a whole bunch of office supplies with a blank company check and his signature…including a new printer for my kids and a portable scanner for… I guess for the “heck of it.”
  • I went to the bank with a check made out to Cash.  (That was an easy $500.)
  • I paid my new car’s DMV bills with his check…and got my husband’s car smogged.
  • I signed a few petitions in his name.  He’s now a Democrat that actively supports breast cancer funding.
  • I also got a PO Box in his name at the local Mailboxes Etc. office.  All that new paperwork will never even come to the office.
  • …And I did a whole bunch of other stuff, although I can’t remember them at the moment.

You know what the best thing is, Diary?  When he comes back, he’ll have no idea what I’ve done.  Most of the paperwork will go to the new PO Box I opened in his name.  And even if he comes back and asks to see the bank statement for the first time ever, he still won’t know what I’ve done.  I can explain away the DMV and car-related bills as “work needed on one of the company vehicles,” the Office Depot check as “supplies we needed” and the Cash check as “Petty Cash” issues that came up.  All the rest…well… there’s just no way he can find out about that stuff.   At least none that I can see.

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How to CATCH this Kind of Theft:

You can’t.

You can’t catch this kind of theft because you’ve given them a free pass to steal from you.  And since your bookkeeper has access to all of your most personal information – social security numbers, DOBs, Tax ID Numbers – you’ve just made it super easy for them to take anything they want in your name.   That means – YOU are responsible LEGALLY for EVERYTHING they’ve done.  The IRS says you owe money, and they have your legal signature on file…then you have to pay it or try to fight it.  It’s your signature. And if you lose, you have to pay penalties and interest on top of the paperwork they’ve filed.

Okay – you CAN catch this kind of theft, but you’ll need a professionals help after the fact to find out what that bad bookkeeper did.  Now you can PREVENT this kind of theft by NOT giving your signature stamp to anyone who has access to your checks, credit cards, or any kind of personal information.  Maybe that person is your office manager or receptionist.  Maybe you can give it to your accountant and make your bookkeeper go to them to get your signature.  Either way, by adding a second person to the mix whenever you go on vacation, thus giving the second person you’re signature stamp, you are taking steps to actively prevent embezzlement while you’re away.

AND REMEMBER – IF YOU EVEN SUSPECT BOOKKEEPING FRAUD, ASK YOUR ACCOUNTANT FOR HELP.  You’re not crazy.

Diary of a Bad, Bad Bookkeeper (Day 30) – The Double Payday Scam

Dear Diary,

Today was payday – the second since I’ve been here.  I figured it was about time to test the Double Payday Scam – to see if my boss would actually catch me.

So, I started the day by doing the Payroll.  Just like two weeks ago, I created and took all of the paychecks to the boss to sign.  He signed them, with only the occasional request to see a corresponding timecard…then he signed mine without question.

I took the checks back to my office and set mine aside.  Then, I printed up another paycheck that I took back to him.

“What’s this?” he asked me, glancing briefly at my double payday.

“It’s a replacement check.  I double-checked my income and realized that I had entered my withholdings incorrectly, and QuickBooks took out too much in taxes.  So I voided the other one and reprinted this one.”

“Okay,” he said, shrugging and then signing my check.

And just like that – Double payday.  If he had asked me to produce the voided check, I would have gone back to my office and voided the first check… but since he didn’t, he’ll never know.  Even if he opens the bank statement (which let’s face it, he probably won’t), he’ll see the extra paycheck and think he’s just looked at the same check twice.

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How to Catch the Double Payday Scam:

All a small business owner has to do to catch the Double Payday Scam is to ask to see the voided check, or to insist that you will void all checks personally.  They can then refile the checks, and you have protected yourself… it’s that simple.

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Click Here to Read the previous entry:  Diary of a Bad, Bad Bookkeeper (Day 14) – The Carnage Begins

Click Here to Read the Next Entry:  Diary of a Bad, Bad Bookkeeper (Day 40) – Stealing the Boss’s Identity

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Diary of a Bad, Bad Bookkeeper (Day 195) – The IRS

Betty Bookkeeper Headshot

Dear Diary,

Today I got a notice from the IRS.  Luckily, the receptionist passed the letter to me unopened before the boss saw it (she didn’t know what it was), and he doesn’t know it’s here.

Opening the letter, I was shocked.  The IRS said that the company owned payroll taxes on the paychecks for the last three months that I’ve been here, and since we hadn’t paid when we were supposed to, we now owe penalties and interest.  Apparently, payroll taxes are due within three business days of cutting payroll checks, and the IRS considers that money “they’re money.”  All I can say is…”WHOOPS!”

So now I have a dilemma.  Do I show the boss the letter and have him cut the check right away?  Or, do I just hide this letter and try to deal with it a little at a time, without the boss knowing?  Obviously, the first choice comes with the unfortunate consequence of the boss coming to believe that I don’t know how to do my job when I do (I mean – Seriously!  It was one simple mistake).  The latter choice means that he continues thinking I’m brilliant, and that the company is doing better in my hands…

Hmmmm…choices, choices.

Although, now that I think about it, I see a third option here.  I could always continue to fill out the payroll tax forms, but instead of cutting the IRS checks, I could just take the payroll tax money and enter the taxes as “Paid” in the bookkeeping program.  The boss will think that I’m paying the taxes, and I can make a little extra on the side.  Then, if the IRS does ever come calling, I can just explain it away as, “the bookkeeping program must have made an error in calculating the payroll taxes.”  After all, it’s not like the boss would expect me to stay on top of all the interest rates.

And how often does the IRS come calling?  I mean, Really?

You know what they say, “Ignorance is bliss.”

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Keeping a Clean Bill of Health with the IRS

I’ve often told my clients, “The IRS is an unforgiving mistress.”  Would this piss the IRS off to hear?  Sure…but I think they would rather keep their intimidating reputation than have people painting them as sweet and kind.

The facts are these…The IRS considers themselves debt collectors for the people.  The money that a business is supposed to pay does NOT belong to the business, but to the business’s employees the moment those checks are cut (at least in the IRS’s point of view).  What that means is, they will NOT negotiate on when you can and cannot pay payroll taxes.  You should pay it within three business days of the checks being cut, PERIOD.  And if you ask employees to hold off on cashing their checks until you can get some money in the bank account, you could suffer fines as high as $25,000 per Employee Check.  (Imagine it…your business is strapped for cash, and so you ask your employees to wait a week to cash their checks.  Then you fire a bad employee.  What will they do?  They’ll run to the IRS and report you, and BAM – bye, bye business.)

The point I’m dancing around here is that – YOU DON’T MESS WITH THE IRS!  You – whether you’re the bookkeeper or the business owner – need to make sure the taxes get paid on time.  Since payments can now be made over the phone directly from a checking account, the business owner will likely never see a payroll tax check to cut.  That means, the business owner needs to check up on their bookkeeper and make sure the taxes were paid, or you could suffer huge fines.

To Make Sure the IRS Taxes are Being Paid

This step merely comes down to one thing yet again. Open your bank statements and look at it.  You will probably see the payments listed near the top, detailed out as an EFTPS payment to the IRS.  It’s that simple.  If you don’t see the payments cut as often as payroll is cut, get it taken care of immediately.

One Last Note for Small Business Owners

The mistake of not paying the payroll taxes is VERY common with a lot of bookkeepers.  The biggest reason is that many bookkeepers are office managers that were handed a company’s check register and told to “take care of it.”  So, just because payroll taxes may not have been paid at your company, doesn’t mean your bookkeeper is an embezzler.  It could just mean that they aren’t on top of everything they’re supposed to be doing yet.  Make sure your bookkeeper is on top of the IRS forms, and definitely talk to your accountant for help.  That’s an accountants main job – to deal with the IRS.

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Diary of a Bad, Bad Bookkeeper: Paypal

Betty Bookkeeper Headshot

Dear Diary,

Betty Bookkeeper HeadshotToday I got an intriguing email.  The email was a confirmation from PayPal.  It said that we had spent $150 on an online order.  Since the company does not have a PayPal account, I knew it was a scam – a Phishing Scam, where some con artist is trying to get access to our account.  When you click on the links in the email, you are taken to a fake PayPal page where you are encouraged to log in and verify the purchase (or deny it), and then the fake website captures your real log in details and the con artist can then empty out your PayPal account.  Any good back office person knows – you never click on links in emails from financial websites (because it’s easy to “cloak” the website links).  You always go directly to the original website and log in there. 

Obviously the PayPal notice was a con…but it got me thinking.  Our company does not have a PayPal account…but we could.  It only takes a few minutes to set up, and then you can make payments from any checking account or credit card account that you link to it. 

So I opened one. 

Then, I went online and made a purchase to Office Depot. 

When I checked the bank balance online, I saw that the payment was debited as a PayPal account to Office Depot.  As far as I’m concerned, the explanation from the bank is simple enough to satisfy the boss.  Now, I don’t need to forge checks unless I really want to. 

Now the only question is…what should I buy

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In this mini story, there are actually two cons I’ve brought up:  The Phishing Scam and The PayPal Weak Link. 

The Phishing Scam is an actual scam where a thief sends a fake email encouraging you to click on the link in the email.  By doing so, they can capture your login information and then clean out your bank accounts.  PayPal Emails are the most common financial cons.  After PayPal, sending emails from banks would be the second most common way con artists get information from their victims.

There are three easy ways to spot these scams: 

  1. Banks and financial institutions have standard, precise emails already created that always use the same verbiage.  Phishing emails, on the other hand, often have misspellings and/or sentences that don’t make sense.  If anything doesn’t seem right with any financial institution’s email, it probably isn’t from your financial institution.   
  2. When you open the email, you will see the “From” address is not necessarily from the financial institution it claims to be from.  Whatever is after the “@” sign is the website address.  Anything in addition to the normal address probably means the email is a scam.  (For example:  …@paypal.fakesite.com or …@fakesite.paypal.alerts.com.)  Both the paypal.fakesite.com and the fakesite.paypal.alerts.com are completely fake because whatever comes before the .com is the site.  That means, these sites would be fakesite.com and alerts.com…not PayPal.com.   
  3. And finally, banks and financial institutions openly encourage customers to NOT click on links from their emails because Phishing Scams are so common.  Instead, they will tell you to go directly to their actual website to log in so that you can verify if the email is from the bank or not (and thus the alert is fake or not). 

Also, it’s common to get emails from banks you don’t even have an account with.  If that happens, obviously you can ignore those…but if you are concerned that an embezzler has opened an account in your name, just print out that email and go down to the bank to see if you have an account or not. 

AND when in doubt – go directly to the source…never click on the links in an email from a Financial Institution. 

As for the second con – The PayPal Weak Link: 

It is very, very easy to open a PayPal account and link it to a checking account…any checking account.  PayPal has a very simple verification process, which means that creating a PayPal account is easy for anyone with access to your checking account information, including your bookkeeper.  From there, it is very easy to steal money because PayPal and the bank account link together in order to create instant money transfers.  Plus, money can be sent to anyone with another PayPal account, and everyone takes PayPal these days (including airlines and other travel agencies), so stealing becomes very easy.

Therefore, to protect yourself from someone linking a PayPal account to YOUR checking account, you need to link it first.  In other words, you need to be the one to create a PayPal account with your checking account.  PayPal only allows a checking account to be linked ONCE, which means no one else can use the checking account information.  Once you have linked it, keep that information to yourself.  There’s no need to share it with your bookkeeper or anyone else because business’s should stick to using Bank Bill Pay and writing checks…Period.  PayPal should only be used by one person…the creator of that account.

Thus, if you don’t have a PayPal account, start one immediately in order to protect your checking account.  If PayPal does NOT let you create a PayPal account, then an embezzler has already linked to your checking account, and you need to consider closing it.  This is one of those huge companies that you just can’t avoid, and you really shouldn’t avoid. 

Diary of a Bad, Bad Bookkeeper: Why the Accountant Did NOT Catch Me

Dear Diary,

Let me just say – WhewWhat a relief.  Tax time is over and I got off scott-free.

You see, I was very concerned that when I handed over the business books to the accountant this year, I would be busted – caught – nailed to the wall.  I was sure I’d be in Shawshank before long, and I was almost tempted to clean up my act – almost.  I was sure I was cooked when the accountant called me a couple days ago and asked for the bookkeeping program’s “Accountant backup.”  How could the accountant NOT see at an instant that I’ve been embezzling from the company for months now, especially when they have completely access to everything I’ve done?

But I got lucky.

Turns out, the accountant only wanted the backup of the program so that he could enter the usual accountant adjustments like depreciating the assets, updating interest balances, and adjusting the Cost of Goods Sold account.  And thankfully, most of that information was updated from the reports that I created for the accountant’s perusal.

Still, it was a long couple of days as I waited for the Accountant’s copy to be returned.

And then the wait was over.  The accountant copy was back and the accountant had praised me to the boss.  He went so far as to say that I “kept a clean set of books.”

The boss was so happy, he gave me a raise.

I never thought I’d say it – but I’m glad the accountant looked at the books.  I can’t wait until next year.  I’m thinking, maybe I’ll create a second set of books… just in case the accountant ever decides to look closer.

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Why the Accountant Did NOT Catch the Embezzlement

E.T. Barton

This is a concern I hear from a lot of business owners that were embezzled from.  Even more often, I hear business owners that have NOT been embezzled from telling me that they are NOT worried about embezzlement because “they have an accountant.”  Both types of business owners usually believe that when they hand over their books at the end of the year, the accountant is automatically going to look deeply between the lines and spot anything suspicious.

FINDING EMBEZZLEMENT IS NOT THE ACCOUNTANT’S JOB… not unless they’re asked.

During tax time, accountant’s are bombarded with books from various businesses.  They have a very limited amount of time to do everything from sending out tax forms to making adjustments to various accounts.  In other words – tax time is an accountant’s “busy season.”  They often have a preset list of actions to do with any business’s books.

Another Example of Missed Embezzlement

Let me state this another way.  Recently, I have been working with a non-profit branch of a company that reports their profits and losses to their “parent” company.  Since the company is a non-profit branch (or chapter) and NOT a business that is run in the usual ways, this branch reports does NOT report directly to the IRS or an accountant.  Instead, they are sent a questionnaire from the parent company that they have to fill out and send back to the parent company.  They are not asked for any backup, which makes it even easier to steal from the branch.

Recently, when I reported to the parent company that I saw signs of embezzlement in this particular branch, the parent company said they would look into the financials.  When they looked over the reports that the embezzler made up for the chapter, they reported no signs of embezzlement.  They openly admitted that they had to have a closer look at the records and the bank statements in order to verify if their was embezzlement or not.  And since the branch (chapter) is not required in the non-profit policies and procedures, the branch could very well go under if a closer look at the books is not performed immediately.

How to Catch this Kind of Embezzlement

The only way for an accountant to catch this type of embezzlement is to have the business owner actually ASK the accountant to look for embezzlement.  If the accountant is not asked, they will not look closer.  They will go through their preset list of actions and look no further.  The other way is to have someone else – preferably another bookkeeper – look more closely at the reports and compare them to the bank statements.

Diary of a Bad, Bad Bookkeeper: (Day 72) Bank Balance? What Bank Balance?

Dear Diary,

Today, was a funny day.  The boss came into my office, and he had this look on his face.  It was a look like, I’m gonna get answers – no matter what.

Pasting an innocent expression on my face, I quickly hid the Mafia Wars game on my computer screen and turned my full attention to him.  “What’s up, Boss?” I asked.

“Hey, Betty.  I was just wondering – how much money do we have in the checking account right now?”

Oh Crap, I thought.  He’s not catching on to me, is he? “Why do you ask?”

“Well, I was checking out the iPads online, and I was thinking I wanted to get one of the ones with 3G—”

You and Me both!

“—But I don’t want to have to finance it.  I figured maybe we could pay cash for it.  So, I was just wondering what our bank balance was.”

Heck if I know.

Okay, maybe I do know, but I can’t tell him the real balance. “I’ll have to get back to you on that one,” I told him.

He looked around at the large piles of paperwork on my desk, his face twisting with irritation.  “You can’t just pull up some report and tell me?”  It was obvious he didn’t like my carefully gathered piles of paperwork, but I had to look busy.

“It’s not that easy,” I lied.  “I have so much work, it’s going to take me a while to get you an accurate balance.”

“I can wait,” he said, leaning against the table in my office.

It was then, I knew… I would have to pull out the big guns to get him to drop the subject.

Grabbing my stomach, I grunted and shifted in my seat.

“You okay?” he asked.

I waved a hand nonchalantly.  “Oh, sure.  I’m fine.  It’s just… I’m cramping.  I’m PMS’ing right now, and my stomach is really hurting.  I want to get you that balance, but I’m in so much pain.”

He stiffened, as if I’d slapped him, and quickly came to his feet.  Then, his face turned red so fast, I thought steam would shoot out of his ears.

“You’re hurting that much?” he asked, inching toward the door.

I whimpered and nodded.  I wanted to drive it home with a  few tears – just to see if I could get sweat to break out on his balding forehead – but I’ve never been good at making myself cry.  So instead, I did the whole wobbly chin thing.

“You know what – you’re busy,” he told me, from the hallway now.  “I can get it another time.  Just let me know the balance when you can.”  And with that, he turned on one heel and practically sprinted away.

I was hard-pressed not to start laughing out loud.  But I realized a hard truth.  Men will always run when it comes to PMS and tears.

I will definitely remember that next time.

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What Any Business Owner Has the Right to Expect From Their Bookkeeper:

I know a lot of bookkeepers may get mad at me for saying this, but in my opinion, when a business owner asks “What is my bank balance?” the bookkeeper should be able to answer fairly quickly.  A good bookkeeper will be doing the bank reconciliations regularly – as in, within a week of receiving the bank statements.  And even if they don’t have an exact balance because there are checks and debits outstanding, they should still be able to estimate fairly accurately what the current balance is.  If they can’t tell you the balance – or estimate it – or if they say it will take a couple days to do the bank reconciliation, take this as a warning sign.  The Bank Register is one of the most important things a bookkeeper manages, and they should be on top of it.  Personally, it has never taken me longer than an hour to do a bank reconciliation, and that’s with entering checks.  Obviously, give them time to calculate it, but it’s reasonable to expect the balance by the end of the day.

Diary of a Bad, Bad Bookkeeper (Day 127) – The Payroll Tax Scam

Dear Diary,

Today, I was bored at work.  Really bored.  I mean – surf-the-internet-looking-for-designer-handbags bored.  (And I don’t even like designer handbags…although I wouldn’t mind a Brighton.)

Anyway…it was Payroll Day, which usually I’m happy about.  When payroll comes around, I take my sweet time entering all the timecards and wages.  I tell the boss it’s an all-day project, but in actuality, I’m done before lunchtime.  I usually bring the checks into his office around 4PM, thus I get the rest of the afternoon to screw around online.

So there I was, surfing Bag, Borrow or Steal, when the receptionist walked in.  I quickly switched the windows on my computer to show the payroll.  Ironically, it was my own check.

“When do you think the payroll checks will be ready?” the receptionist asked me.

“Why do you wanna know?” I asked in my most annoyed voice.

She inched toward the door, clearly uncomfortable by my unwelcoming persona.  “It’s just, I have to leave at lunchtime, and I’m going on vacation for the weekend.  I was kinda hoping to get that check before I left.”

“Oh.  Well then, I’ll put a rush on your paycheck,” I told her.

Her little ears actually turned pink with pleasure as she thanked me effusively and scooched out of my office.

That was when I turned my attention back to the monitor and realized something.  I had inadvertently changed my Federal tax deduction amount from $200 to $0.  I don’t think I’d ever realized before that it was so easy to change the payroll taxes before cutting a check.

It was my Ah-Ha moment – like Oprah always talks about.  I realized in that moment, I could zero out my taxes to get more money with every paycheck, but then still pay the regular tax amount to the IRS each and every payday.  Then, at the end of the year, I could file my taxes and get a BIG-FAT refund.  Even better, I could make my boss overpay the taxes on everyone every week and file the paperwork at the end of the year declaring that all of those excessive taxes were deducted from my paychecks alone, and then get an even larger refund.  If I could manage to make the weekly payroll amounts the same every payday, the boss wouldn’t think to look twice at the money being deducted from the account.

The question now is:  how much can I get away with paying before the boss notices a difference?
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To Stop this Kind of Embezzlement:

This is one of the sneakiest types of embezzlement, especially because it’s common for an employer to pay a lot of money in payroll taxes.  Also, it’s common for bookkeepers to adjust individual government taxes for each pay period because usually, it’s only the individual employee who would have to face the consequences – that of dealing with the IRS at the end of the year and trying to get a refund or make up the difference.  The biggest embezzlement possibility happens when the final paperwork is filed at the end of the year – the paperwork that details out who paid what in employee/employer taxes.  It is on that paperwork where an embezzler can declare that they overpaid in their taxes and thus deserved to get ALL of that money back.

Therefore, to catch and prevent this kind of embezzlement, you need to:

1)      Look closely at the individual taxes of the person who creates the paychecks.  (This should be on an attached paystub.)  Compare it to someone who makes approximately the same amount during that period.  Look to see if the tax amounts are very different or only slightly skewed.  A big difference will either mean that the two individuals claim different deductions during the year, or that the tax numbers were overridden.

2)      Periodically, add up the individual taxes for all of the employees being paid.  Once you have a total tally, compare it to the payment that was made to the government.  (You should see this on the bank statement or credit card statement that was used to make the taxes.)  If the totals are not the same, then you definitely have a problem.  That problem could be embezzlement, or it could just be that your bookkeeper is dyslexic.

3)      Finally, have someone other than the person entering the payroll fill out the final payroll tax paperwork at the end of the year.  Even though it will cost you more to pay an accountant to do this, it could potentially save you thousands in overpaid taxes that an embezzler will claim as a refund.  All you have to do is send a copy of your bookkeeping file to your accountant, and then your accountant can take a closer look at anything that doesn’t look right.

If you have any other suggestions on how to stop this type of embezzlement, please share it.  The only way to stop embezzlers from destroying the companies they work with, is through educating each other about how they’re getting away with it.

Diary of a Bad, Bad Bookkeeper: (Day 149) The Collusion Scam

Betty Bookkeeper Headshot

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Dear Diary,

Today was a not-so-great day.  Apparently, I have a partner now.  I never intended to have a partner, but it appears I have no choice in the matter.  Here’s what happened:

I was in my office (innocently shredding checks), when I suddenly heard a man say, “I know what you’re doing.”

Quickly slipping the leftover checks back into my desk drawer, I looked at him with my most innocent expression.  “What do you mean?” I asked sweetly.  It was Ernie, one of the flooring installers that handled the bigger clients.  He was considered the boss’s second-hand man.  “What do you think I’m doing?”

“You’re destroying the evidence.”

Crap.  How did he know? But I decided to play it cool.  “What evidence?” I scoffed.  “I don’t know what you’re talking about.”

“Those checks you’re shredding are the checks you’ve forged.  Am I right?”

“Why would you say that?” I demanded, pretending to be affronted.

“Because I’ve seen all the signs before.  The new car…the fancy clothes.  You order lunch all the time instead of bringing it from home like the rest of us do.”  He glanced down the hall behind him, then stepped into my office, lowering his voice as he did.  “I know what you’re doing…and I want in.”

In?  Was he nuts? “I don’t know what you’re talking about.”

“Yeah, you do.  And you can either cut me in, or I’ll rat you out.”

Cold chills ran up and down my spine, and my palms were actually sweating.  I could tell by the smug look on his face that he knew he had me between a rock and a hard place.

“Look,” he continued, propping himself onto the edge of my desk and leaning toward me.  “You don’t have to tell me everything you’re doing.  I don’t really care.  I just want a piece of the action.  And I have the perfect way to do it.”

I narrowed my eyes.  “Oh yeah.  What’s that?” I asked.

“Simple.  I have a friend that runs his own construction company and can get us plenty of jobs.  You cut some checks to his company with an additional amount of money, and he’ll pay the rest of the money back to us.  The boss won’t ask questions because he’ll be able to see that the work is getting done, and we can make a tidy sum on the side.  So what do you say?  Should I call my friend?  Or should I call the boss?”

“The boss won’t believe you.  He trusts me 100%.”

“He trusted his last bookkeeper too – until I accused her of a few things.  And I’ve been here for seven years.  Who do you think he’s gonna believe?”

And just like that, I had a new partner.  But at least if we’re both stealing, he can’t accuse me of anything without me making a few accusations back.  I won’t be going down alone if he decides to betray me.

On the plus side, it is a quid pro quo situation. I help him make a little extra money, and he gets me new carpeting in my entire house.  I think I want purple…

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How to Stop the Collusion Scam:

Spotting and stopping the Collusion Scam is really difficult.  For one thing, the invoices that the bookkeeper receives will match the checks going out.  That makes embezzlement even more difficult for an auditor (or auditing accountant) to find because there’s legitimate backup and everything appears to be “on the up and up.”  For another thing, the money being paid out will not have your bookkeeper’s name on it, and the money they’ll be taking home will be coming from one or many of their colluding partners.

Therefore, to spot and stop this scam, you need to trust your gut.  Pay attention to who is hanging out in your bookkeeper’s office.  Most bookkeeping positions involve staring at a computer all day, and if someone is spending more time than necessary or usual, take note.  Begin observing that employee as well and see who they recommend as “work associates.”  Keep an eye out for how many checks they receive each month, and if those payments seem a bit high.  Also, look for signs that those employees are spending more money than they’re making.  Oftentimes, an employee’s spouse will make a lot more money than the employee, but there will be a consistent spending pattern if that is the case.  It’s the sudden changes you want to look for.

Also, since one of the easiest ways to stop embezzlement is to be the only person who opens bank statements as they come in, you want to keep an extra watchful eye out for checks to vendors or customers that also seem “a little too high.”  If you feel like a company is making too much money for various projects…shop around.  Call that company’s competitors and see what they would charge.  And stay open to switching vendors.  Because the truth is – you never know when someone is going to decide to steal from you…”by any means necessary.”

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