Over at Smart Business Stupid Business Online, we welcome stupid business stories. Face it, we all want to have smart businesses, but the fact is that if you’re like me, you’ve got plenty of stupid business stories. If you’d like to spare someone the pain of going through the same tough business lesson you endured, then please go to http://www.SmartBusinessStupidBusinessOnline.com/stupidbizstories and tell us what happened and the lesson learned. We’ll give you credit if you like, or you can be anonymous. When our new book publishes, we’ll make sure you get a copy too!
One of the stories we received from fellow CPA Lorien Prince really hit home for me – the need for controls no matter how big your business is. Lorien tells the story:
- “I was brought in simply to prepare the 4th Quarter payroll tax returns for a small 4-man architectural firm that had just gone out of business due to the economic downturn in 2009. The company had been using an outside bookkeeping service to keep their QuickBooks records, process their payroll, reconcile the bank accounts, prepare payroll tax returns, prepare their federal income tax returns, etc. In other words, this outside firm was relied upon to do EVERYTHlNG.
The owners trusted them completely and did not really look behind the numbers on the printed page. As soon as I started working on that payroll tax return, I saw some very suspicious activity. My investigation revealed that the outside service had been including themselves on the payroll direct deposit for YEARS in amounts up to $1,000 a WEEK.
After each payroll, they went back into QuickBooks and edited the paycheck amount to make it look like a very small payroll processing fee. The way QuickBooks/Intuit Direct Deposit works, cash still reconciled, but a very ugly $70,000+ figure showed as a debit in Payroll Direct Deposit Liabilities on the Balance Sheet remained.
The owners had no idea what that number meant…until I told them that’s how much had been stolen from them! The Intuit Direct Deposit reports we obtained proving the actual amounts that went into the perpetrators’ bank account, and the Audit Report clearly showed their deceitful activity. The police have been called in, but the state attorney is two years behind on processing cases, so it may be years before they address this case and arrest the thief.
In the meantime, the thief continues to operate her business and probably steals from others. My poor client is out of business and out of money. She could pursue civil action, but feels she would be throwing good money after bad. Right now, she needs what money she has to help her family survive.”
The sad thing is just like Lorien points out, if the owner had known how to read a financial statement, the owner would have caught this right away.
The most common embezzler is the bookkeeper. At Cash Flow Accounting LINK, we teach you how to spot embezzlement in your financial statements.