Trust but verify

I have read over the past few months articles about businesses being defrauded by bookkeepers. It always amazes me that this could happen. Before a mob of bookkeepers comes after me, the majority of bookkeepers are honest and hardworking.

But the events I’m talking about could have been avoided with one rule: trust but verify.

Before you can verify the accounting data that is presented to you, you must do a thorough background check of the bookkeeper you hire. First, have all candidates fill out a job application. You can find applications at office supply stores and on the Internet. Second, require a resume and references of all applicants. Third, buy and read a book on how to do an interview, what questions you should ask and what questions are illegal to ask. Fourth, have someone in your office call each company listed on the resumes to make sure they worked at the companies and the dates on the resume match up. You should require references and the references should be at least at a supervisor level. Most companies will only say the dates the applicant worked and if they would hire them again.

Finally, perform a background check. There are many companies on the Internet that perform background checks. They are not expensive and are completed within minutes.

Once you find someone you can trust, you must always verify the accounting data that is given to you. The bookkeeper you hire should have no problem with the accounting data being verified. It is part of the job.

First, the business owner should sign the checks that go to the vendors. Every week, you should have a set day and time when you sit down with the bookkeeper and go over the checks that are going out. The checks should have the invoices behind them. You can look at who and what is being paid.

Second, at the beginning of the month make sure the bank accounts have been reconciled. Look at the statement and canceled checks. If you see an invoice or check that you do not know who it is to and what it is for, question it. Signing checks and going over the bank reconciliation should not require a major time investment. (At some point, if your business grows from a small-sized business to a medium-sized one, the rules will change.)

Finally, require financial statements by a set day every month. Some businesses have quarterly statements, which is fine. Do not let three months go by without having reviewed your company’s financial statements. As a business owner, you should know that if you sell 5,000 widgets, then you should have X dollars of profit.

Make sure your financial statements make sense. If the financial statements do not pass your BS meter, then question why. There could many reasons why you did not make the profit you were expecting. Your sales price is too low or your business had some unexpected expenses. Maybe your expectations are not that realistic. Once you figure out why the bottom line did not match your expectations, you can correct the problem.

By paying attention to the company’s finances, you can catch a small mistake before it becomes a big mistake.

Steven Cioletti of Nashua owns two small businesses — The Green Jobs Agency and the Laugh Or Be Laughed At Production Company. He can be reached at 603-233-5475 or