Think about the last in-house bookkeeper you hired. Did you trust the person? What evidence did you have that you could trust them? More business owners are discovering that virtual accounting minimizes the risk of fraud and theft.
It’s Hard to Spot Employees Who Are Likely to Steal
The Association of Certified Fraud Examiners uncovered some disturbing facts about employee theft, indicating how difficult it is to spot potential thieves: 87% of people who committed fraud were first-time offenders, and 84% had a clean employment history.
Surprising Red Flags of Employee Theft
In spite of this, there are some red flags to look for that indicate an employee could be stealing.
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an employee is living beyond their means (i.e., new car, new clothes, other items that don’t seem to match the employee’s salary)
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an employee is experiencing financial difficulties (financial hardship can give employees a perceived need to steal)
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unusually close associations with vendors or customers (this provides, or creates, an opportunity to steal)
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excessive control issues (beware of the bookkeeper who refuses to take a vacation)
Unfortunately, you won’t spot these until after the damage has been done. And more than half of business owners never recoup losses incurred from theft and fraud.
We’ll leave you with another scary statistic from the ACFE before we delve into how virtual accounting can circumvent the causes of and opportunities for employee theft.
Here it is: 77% of fraud is committed by workers in the following departments: accounting, operations, sales, executive/upper management, customer service and purchasing.
That’s right. The employees you trust most with your finances are the ones most likely to steal.
How can virtual accounting services help?
The Fraud Triangle
Some individuals, about 10% of society, lack morals and will steal no matter what. Another 10% won’t steal in any situation. But the other 80 percent of the population are on the fence. A number of factors can turn these people to the dark side. Experts call these factors “the fraud triangle.”
These three factors are:
- Opportunity – Employees must have an easy, low-risk means to steal
- Need – They must have a legitimate need for the money
- Rationalization – They must be able to rationalize their actions (i.e., “the company makes plenty of money. I work hard and I haven’t gotten a raise in years.”)
Now, let’s take a look at how virtual accounting minimizes all three factors.
Virtual Accounting Reduces the Need
A reputable virtual accounting firm uses a strict hiring process that includes pre-employment credit checks and background checks for all virtual accountants, bookkeepers and financial controllers. A virtual accounting firm with strict hiring criteria in place will accordingly pay their employees fairly, reducing the need for theft.
Virtual Accounting Eliminates the Opportunity
A quality virtual accounting firm uses processes to manage employees that remove any opportunities that your virtual accountant may have to steal from your business. Two such strategies include issuing electronic checks and limiting authority to sign off on payments to one person. This way, there are no blank checks stored in an unlocked drawer that you have to worry about.
When you utilize the services of a virtual accounting firm, your financial controller oversees your bookkeeper, creating a system of checks and balances. Every month, you sit down with your bookkeeper and financial controller for a process called “closing the books,” where they review all your financial statements with you.
Finally, a virtual accounting firm should make sure that all employees receive adequate sick time and take at least two weeks paid vacation per year. During this time, another highly qualified bookkeeper from your virtual accounting firm can easily step in, following the processes and procedures outlined in your Client Procedures Manual. Because bookkeepers who never take a vacation are a high fraud risk, we ensure this doesn’t happen.
A Purely Business Relationship with Your Virtual Accounting Firm Eliminates Rationalization
Often, in-house bookkeepers work in conjunction with your other in-house employees to steal. Whether the rationalization is employee dissatisfaction or resentment over their salary, in-house bookkeepers can often find a rationale for stealing from the company.
Your virtual accounting department will know you and understand your business, but they don’t work in your office. Additionally, bookkeepers will have no contact with your company’s vendors or customers. By keeping the relationship purely professional and at arm’s length with virtual accounting practices, a reputable virtual accounting firm can make it virtually impossible for your bookkeepers to rationalize stealing from you.
