Beware of bookkeepers who won’t answer straightforward questions

In this post, Nagel warns readers about bookkeepers who profess to be knowledgeable, yet won’t answer straightforward accounting questions.

As accountants, we often rely on bookkeepers to perform the arduous task of preparing the raw journal entries — the gazillion transactions — that tell the financial story about a company. Rightly or wrongly, we assume the bookkeeper has the necessary knowledge and experience to provide us with this information.

BUT, WHAT HAPPENS IF YOUR BOOKKEEPER IS NOT AN ETHICAL BOOKKEEPER?

Many small and mid-size companies outsource bookkeeping services to a third-party, as they neither have the bandwidth nor in-house expertise. This tends to be both practical and cost-effective, particularly for start-up businesses.

I’ve come across a number of excellent bookkeepers who are very passionate and take pride in their work. There are also, however, bookkeepers who profess to be knowledgeable, yet won’t answer straightforward accounting questions. This is commonly referred to as the “super-size-me-giant-red-flag!”

One owner-manager who suspected financial wrongdoing asked me to conduct a preliminary investigation. When I presented the initial list of information I required, I was advised that the third-party bookkeeper was “still working on the documents and therefore could not release them yet.” This was surprising – and troubling – as the records related to the prior year’s financial activity. While the owner-manager appeared to rationalize the bookkeeper’s oddities, I expressed my immediate concerns. Turns out, I was right.

Many organizations that have been victimized by an internal fraud turn to third-party bookkeeping shops, with the belief that their risk of a reoccurrence will be reduced. But blind faith is a dangerous path, as trust is not an internal control. Without the proper checks, this opens the Pandora’s Box of opportunity for large-scale misappropriation — from fictitious vendors and ghost employees to cheque fraud, and everything in between. And, since many bookkeepers and their employees often have no formal fraud-prevention training, this increases the likelihood of a fraud going undetected for months, if not years.

In short, don’t be afraid to ask the tough questions. What’s worse than getting stung by a bee (aka your employee)? Getting stung again, in the same spot, this time by your bookkeeper!

About the Author

Edward Nagel, CPA, CA•IFA, CBV

Forensic accountant

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