Whose hand is in your till?
An accountant gone wild pleaded guilty to stealing more than $1 million from his clients. Here's what you can do to protect your own books.
(FORTUNE Small Business) -- When a local accountant offered to do the books for Lake Architectural in Marcellus, N.Y., Peter Sorber, co-founder of the three-year-old firm, was overwhelmed by managing his growing business and was happy to accept the offer.
The accountant, Brian Baker, ran a self-named firm as well as another business: B&B Payroll & Bookkeeping Service, both based in the nearby Syracuse-area town of Manlius. He had been in business for eight years and came highly recommended, according to office manager Susan La France.
Sorber, who now has 11 employees, granted Baker full electronic access to his firm's checking account. He gave the accountant control of Lake's finances, from managing its payroll to business planning. Baker even offered to do the personal tax returns of its employees.
After an initial consultation in November 2006, however, Baker became maddeningly hard to reach. "It was getting close to tax time," says Sorber, 53, "and we were not able to get hold of him."
Last June, La France received a call from a large payroll concern in the area, saying that Baker had not filed Lake's first-quarter employee taxes and that Baker had called the payroll service in to help his clients sort out the matter with tax officials. La France immediately checked Lake's accounts and discovered that more than $7,000 had been removed by Baker.
In March, Baker pleaded guilty to one count of first degree grand larceny, admitting he stole more than $1 million. Over 15 local businesses were affected. Baker and his lawyer, Kevin McCormack, had no comment.
Dr. John Callahan, 44, owner of Adult Primary Care of Fayetteville, N.Y., another business affected by Baker's actions, found Baker through a local radio advertisement.
"I thought it was good to support a local business," he says.
He never asked Baker for references. Callahan says that with all the tasks he was saddled with in starting his practice, he felt he didn't have the time. The businesses that hired Baker say they had no reason to suspect his ethics.
While few small companies can afford the independent audits and fraud-detection training common among big corporations, there are less costly ways to protect a business.
Paul Hense, an accountant based in Grand Rapids, has this advice: When hiring an accountant, request five references - and take time to check them. An outside accountant shouldn't handle payroll unless the accountant's firm is bonded by an insurance policy. If a bonded accountant makes a mistake or commits fraud, the client is usually covered. Owners should also consider adding embezzlement coverage to their umbrella insurance policies.