Ghost in the companyBelieve it or not, Ghosts do exist. Even worse, they can exist in a business. When I say “Ghosts,” I do not mean the ethereal spirits that walk through walls and wail in the night…the sounds of chains rattling and making goosebumps rise on your arms. No, when I say “Ghosts” may be inhabiting your company, it simply means that you may be paying employees and vendors that do not really exist…or if they do exist, they do not really provide you with the services or goods you may be paying them for. In this third article in its four-part series, I show you how ghosts come to settle at your company (a common bookkeeping scam) and how you can exorcise them for good.

GHOST VENDORS

Ghost vendors are basically companies that you pay for goods or services you did not receive. Since bookkeepers often find vendors to help keep a company afloat, it is very easy to convince a business owner that a check to a vendor is a valid payment. As a business owner, it is your job to know if that expense is legit. Checking with your state to see if a business is valid is not going to guarantee your protection. You have to do more.

Consider this: It costs less then $100 to get a Fictitious Business Name…a name which is then filed with the state and requires little or no back up documentation to acquire. Once someone has a Fictitious Business Name, they can then open a Business Checking Account in that new company’s name. It takes no more then an hour to get both legal products, and an embezzler is then able to deposit checks into that account immediately. The bank with the embezzler’s account is not going to know if the check they are cashing is valid or not, nor will they know if the signature is truly yours. All they care about is taking care of “their customers.” Therefore, it falls on your shoulders to protect yourself.

Protect Yourself By: Being obnoxious and paying late. Even Ghost Vendors submit invoices, and there should be an address on that invoice. If there is one, drive by the address and see if there is a business sign posted anywhere out front. If there is not an address, or there is a PO Box, then do not sign a check paying that vendor unless that vendor is willing to come to you in person to collect that check. If they are in collusion with your bookkeeper to embezzle you of funds, they will be less willing to face you then your bookkeeper would be. If your bookkeeper harasses you to make the payment and claims that the vendor is harassing them, tell your bookkeeper to forward the vendor’s calls directly to you. A good bookkeeper will be relieved to not have to deal with angry collectors, and any other response then relief should tell you that something is wrong.

GHOST EMPLOYEES

Ghost Employees are basically people you pay every pay period who do not really work for you or your company. Obviously, if you are a small company, it is going to be harder to slip a Ghost Employee’s paycheck across your desk, but, the larger the company, the easier it becomes to add ghosts. An embezzling bookkeeper will not only deduct the payroll taxes from this person’s check to make it look like a valid paycheck when you sign it, but they will also pay payroll taxes out of your account to hide the embezzlement from your accountant.

Consider This: A carpeting company I once worked with had many flooring installers who worked “in the field.” Many of the installers would hire assistants that they would pay from their own pockets in the beginning, but over time, they would ask the business owner to add the employees to the payroll. The owner would do it sight unseen, thus making it very easy for an embezzling bookkeeper to slip in a few more ghosts without the owner’s knowledge.

Another way embezzlers add Ghost Employees is to cut checks to their friends and / or family. That person may not even be aware it’s done if the embezzler has access to their checking account. Any deposits made into a joint checking account would easily be explained away as “The Embezzler’s Paycheck.” (This is common between an embezzler and their spouse…the check being written in the spouse’s name, and the spouse never seeing that check.)

Protect Yourself By: Getting to know all of your employees and insisting on seeing them “on the job. ” The less involved you are, the easier it is to embezzle from you…and an accountant will not catch this kind of fraud unless you pay them thousands of dollars to investigate it. If you do not like an employee or do not feel that they are actually working for you, fire them immediately. It is better to pay towards unemployment then worry that an unfit employee will drive customers away, or get hurt “on the job” and cost you thousands.

While most people might think their bookkeeper is “totally trustworthy,” it is blind trust that makes you an easy mark for embezzling funds. Since accountants do not look for embezzlement unless you request it and are willing to pay thousands, it is your job to be involved no matter how busy you might be. By simply popping in for a “random” company checkup, you will keep your bookkeeper on their toes enough to make sure that they do not want to steal from you. It’s good advice for anyone no matter how long you’ve worked with your bookkeeper since many bookkeepers steal for years and never get caught until they quit.

Don’t forget to read Part 1 and Part 2 of this series regarding Checking Account and Credit Card and Identity Theft fraud. Also check back next week to learn about common scams bookkeepers use to steal thousands.