It has been some time since our initial newsletter, and for quite good reason. Most of this year I have spent assisting a client sort out their accounts after their Accounts Manager left on bad terms. The client was concerned with the state of the accounts and had suspected that money was going missing. They engaged our services to sort out the accounts and investigate their suspicions. It is sad to say that we were able to confirm their suspicions…several hundred thousand dollars had been misappropriated by the trusted Accounts Manager who had been with the company for 10 years.

We have spent this time gathering evidence against the ex-employee and since last month when the CIB became involved, over 170 charges have been laid against the former employee, with more to come as the investigations go back another year to 2001.

Needless to say, it has been a stressful year for our client, coming to terms with the lost money and cost of time and resources required to investigate this matter. I like to think that at least one positive thing comes from every negative situation. For the first time in many years this client has had up to date financials, systems implemented that work for them, and a real understanding of their financial position and performance as a result of timely monthly reporting.

You may be wondering “how did this happen?” A number of factors contributed to the situation. These are things to look out for :-

  1. If your accounts office is a mess with paperwork everywhere but in its proper place (either in a “to do” tray, “to pay” tray, “to enter” tray, “paid – to file” tray, or “to file” tray, just to name a few), ASK QUESTIONS!
    Perhaps there is simply too much work for the accounts person, in which case you really need to review the allocation of resources; or they need to implement systems to aid efficient paper flow. Ultimately, any piece of financial documentation should be able to be located with seconds. If this is not the case, there could be something amiss.
  2. If your bank accounts (including credit cards) are not being reconciled monthly and are behind, ASK QUESTIONS as to why. Dodgey transactions can be easily hidden within unreconciled accounts, as transactions don’t need to be entered into your accounting software if reconciliation of accounts is not being performed. Also, reconciliations should not be done throughout the month. For easy traceability they should only be recorded on the last day of the month.
  3. If you haven’t seen a P&L or Balance Sheet regularly on a monthly basis, or for a long time, ASK QUESTIONS! It is a reasonable expectation to receive these as soon as the previous month’s bank statement has been received. If there is something amiss you will see very quickly if you correctly review your financial reports and ask questions about anything you’re unsure about.
  4. If your accounts person is unapproachable and always “too busy” to address your requests or questions, insist that they make the time ASAP to supply you with the information you require. This is after all what you hired them for.
  5. If your accounts person is taking work home and has remote access to the financials, I would strongly recommend that this practice be ceased immediately. This setup leaves you open to risk. Risk of your highly confidential data being available to anyone outside of your business, and risk of losing company files and documents that are removed from your premises, as was the case with my client. There is no reason why the accounts job shouldn’t be able to be done during a normal work week with a reasonable amount of overtime (conducted at the office) during particularly busy times. If there is genuinely more work than hours in the week, you owe it to your business to address resource requirements and not burden well intentioned staff.
  6. If your accounts person has full and sole responsibility for all areas of the accounts function (eg processing supplier invoices and making payments to suppliers) seek to split the division of these related tasks so as to limit opportunity for wrong doing. Additionally, if your accounts person is possessive over the accounts when it goes as far as not allowing other staff (accounts or management) to get involved, find out why. This is a characteristic of someone wanting to hide something.
  7. If your accounts person has access to your online banking, even with a small transfer limit, and doesn’t require co-authority, take the time to regularly review the transaction amounts that leave your bank account. The Account Manager mentioned previously (with a $500 transfer limit per transaction) siphoned $160,000 between July 2007 and January 2008, through hundreds of small amounts that no one thought to verify.
  8. If you have more than one trading entity with loan accounts between the entities that don’t balance or haven’t been reconciled for some time, ASK QUESTIONS. These accounts should be reconciled on a monthly basis as a minimum as they are great hiding spots for money gone missing.
  9. If you don’t have a third party reviewing the accounts function and your accountant is not involved, ask them to get involved. In our client’s situation, the accountant has been servicing the company for 20 odd years and was preparing the company’s income tax returns without even looking at the accounting data files that contain the details of transactions. There were blatantly odd looking accounts and balances that weren’t questioned, and therefore this activity was permitted to continue for years until the business owner had a bad gut feeling and got Solution Central involved.

These are the main points that readily come to mind when I think about an unhealthy accounts department, although there is more that is worthy of mention, except for lack of space in this newsletter issue.

All I urge you is this…if you have that gut feel that something isn’t quite right, please don’t push it aside. Action could save you a lot of money and more importantly it could save you your business. Don’t feel bad asking questions that relate to the business that you have sacrificed so much for. If you suspect there is a problem, isn’t it time you looked into it?