Dangers of PayPal & Theft for Small Businesses

During 20+ years of working in small business accounting I’ve encountered a substantial amount of fraud and theft.  I’m normally the person to discover the theft and left in the uncomfortable position of sharing the discovery with the business owners.  There is generally a high level of trust towards the person handling finances and the betrayal is difficult to accept.  There are significate psychological consequences and the victims go through stages of denial, shock, anger, hurt, disappointment and often a need for justice.  Once theft is discovered a choice must be made whether to pursue prosecution.  Choosing to pursue prosecution may lead to destroying the employee’s life.  Normally the perpetrator receives probation, a payback agreement and often a felony on their record making it difficult to find a new job to make the payments.  Choosing not to prosecute, creates a thief that got away with it and is likely to do it again. Therein lies the dilemma of social responsibility.

I once read a research article which made the claim that more than 75% of individuals will steal from their employer if given the opportunity with a perceived low risk of getting caught.  The majority of these people are otherwise honest with at least average integrity but like most things in life perception is everything.  It begins as a loan they will payback but when they don’t get caught it becomes multiple loans or they justify giving themselves an unauthorized bonus because they feel underpaid or underappreciated.  You get the idea.  It’s not hard to see how someone earning the wages of a bookkeeper or administrative position might have financial struggles.  I strongly believe as a business owner not only do we have a responsibility to protect and closely monitor the business finances for the sake of the business but we also have the responsibility to create a financially controlled environment for the sake of our employees.  I never want to feel responsible for fostering an environment that creates a thief.

There are many ways for an employee to steal.  One of the most dangerous I’ve encountered in recent years is Paypal.  Paypal is a dangerous financial tool for small businesses because there is no way to set up good financial controls.  All you need is the login and password to have full administrative control over the account.  I’ve seen a bookkeeper use a Paypal account to receive income, not transfer or record the funds but use them to make personal purchases from the account.  The owner should be only person with the Paypal login and provide monthly reports to the bookkeeper.  If the Paypal account is used only for purchases the transactions appear individually on the bank statement and the bookkeeper doesn’t need access to the Paypal account.  I also highly recommend if you receive money through a PayPal account that you set the account up to automatically transfer it to the bank account.  This provides more thorough records in the bank account.  If you choose to allow any employee access to your Paypal account make certain to login and review the account transactions regularly.

There are a number of ways to create financial controls and a theft-proof business environment.  Here are a few other basic controls that should always be in place:

  • The bookkeeper should never be a signer on the bank account nor should they have a signature stamp;
  • Check stock should be controlled and monitored by someone other than the bookkeeper;
  • Many banks now offer multi-level security options so the bookkeeper can download transactions and statements and also set up bill payments that require the approval of the signer;
  • The owner or check signer should regularly log into the bank account and review transactions and especially view cleared checks;
  • The bookkeeper should provide the owner with the bank account reconciliations and bank statements monthly for review;
  • If possible someone other than the bookkeeper should open mail and make bank deposits;
  • If the business has significant cash receipts you should consult with a professional regarding creating cash controls;
  • A periodic theft and financial review from an outside source is always a good idea.  Even an inexpensive annual review is a great opportunity to create accountability and oversight.

Accurate financial reports and a monthly monitored budget are integral for the growth and success of a business.  How can you grow something you can’t measure?   Quick Accounting Solutions provides a full range of bookkeeping services but we also provide Consulting Services including:  periodic Quickbooks & Financial Reviews, Training, Oversight, Budget assistance, Financial Controls Consulting and periodic Theft & Fraud Reviews.  There is no fee for an initial consultation and quote.


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