How to Safeguard Your Business: The Right Way to Trust Your Bookkeeper
Recent headlines and historical cases consistently reveal instances where business owners fall victim to bookkeeper fraud. In many of these cases, they lose hundreds of thousands of dollars. It’s alarming how easily these crimes can happen, often right under the owner’s nose. Unfortunately, this situation occurs far more often than many people realize. Bookkeepers frequently handle the full scope of financial management, including accounts receivable and payable. With that level of access, someone can easily manipulate numbers or fabricate invoices. This is especially true if they remain discreet and avoid getting greedy too quickly.
However, this article doesn’t aim to dissuade you from hiring a bookkeeper. Instead, it seeks to empower you with the knowledge to protect your business from fraud. When I started my business nearly 20 years ago, my very first client had been defrauded by a previous bookkeeper. Sadly, this wasn’t an isolated incident. Therefore, I aim to share valuable advice on setting your business up for success. I also want to ensure you establish robust safeguards to prevent financial misconduct.
Managing your business finances requires more than trust. It demands a strategic approach to secure your assets and prevent any single person from holding too much control. Establishing a “trust triangle” is one of the most effective strategies to achieve this. This approach protects your business from financial fraud. It involves three key players: the manager, the bookkeeper, and the accountant. Each one fulfills a distinct role, creating a robust system of checks and balances for your finances.
The Trust Triangle: Manager, Bookkeeper, and Accountant
Step 1: The Manager’s Role
The first part of the trust triangle involves the Manager. Your manager handles money at the initial stage of your business. They collect customer payments, deposit those funds into your bank account, and record the payments, ensuring they accurately match the clients who made them. This role is critical because the manager serves as the first line of defense, ensuring proper accounting for all money owed to your business. However, the manager should not have access to your bookkeeping software to prevent potential tampering with the records.
Step 2: The Bookkeeper’s Role
The second part of the trust triangle involves the Bookkeeper. After the manager deposits the funds and records the transactions, the bookkeeper checks that everything reconciles correctly. This verification process ensures that the manager’s records align with the deposits. If any discrepancies arise, the bookkeeper should spot them and bring them to your attention. To further safeguard your finances, the bookkeeper should have read-only access to bank accounts, allowing them to retrieve statements and other necessary information without the ability to move funds. Additionally, the bookkeeper can prepare cheques, but you should retain the signing authority, ensuring that only you or your business partners can authorize payments.
Step 3: The Accountant’s Role
The final part of the trust triangle involves the Accountant. Many people mistakenly believe that a bookkeeper and an accountant are interchangeable, but they serve distinct roles, making it essential to keep them separate. Your accountant’s job is to take the financial data the bookkeeper prepares at the end of the year and validate it. They ensure that all records remain accurate and that your financial statements reflect the true state of your business. If your bookkeeper performs well, very few adjustments should be needed at year-end. Always ask your accountant how many adjustments they require; if the number is high, it may be time to re-evaluate your bookkeeper’s performance. The accountant acts as your final safeguard, confirming that all checks and balances within the triangle are properly maintained and that your business remains in a strong financial position.
Putting It All Together
Establishing this trust triangle creates a system where multiple people take responsibility for different aspects of your financial management. This approach reduces the risk of fraud and keeps your business secure. The manager, bookkeeper, and accountant each play a vital role in this process, and when they work together effectively, they form a powerful defense against financial mismanagement.
Conclusion
Take the time today to assess your current financial setup. If your business isn’t already operating with this trust triangle, now is the time to change. Remember, safeguarding your business finances involves trusting the people you hire and implementing the right systems to protect your assets. This trust triangle could be the key to preserving your business’s financial integrity. Ultimately, it may ensure your long-term success.