Busy small business owners unable to keep up with their books often consider outsourced CFO services as a cost-effective solution. But many fear remote bookkeeping exposes them to security risks – hackers, fraudsters, and embezzlement – especially if the virtual bookkeeping solutions use employees in foreign countries.
Bookkeeping security risks are always a valid concern, especially since internal staff perpetrate 57% of small business fraud. Counter-intuitively, an outsourced bookkeeping service reduces the risk of fraud by adding more oversight and best-practices to your accounting processes.
Elevating Security through Outsourcing
Far from compromising security, outsourced bookkeeping can strengthen it. Reputable outsourced CFO firms adhere to best practices and technologies that elevate financial security, such as separation of duties, best-in-class password management, and continuous fraud education. Outsourced bookkeeping services have overhead and expertise that’s hard to match by your small business.
Beyond security, there are other reasons “do it yourself accounting” hurts your business. Check out our article, “Avoid these bookkeeping mistakes as a small business owner” to learn more.
Analyzing Common Bookkeeping Security Risks
Let’s break down three common security risks, detailing what they are, why they pose a significant risk to small businesses, and how outsourced CFO services effectively mitigate these threats.
Vendor Fraud
What is Vendor Fraud: This type of fraud occurs when hackers send fake invoices to the accounts payable (AP) inbox, masquerading as legitimate vendors. The goal is to trick the bookkeeper into blindly entering and paying the invoice without scrutiny.
A more nefarious version occurs when your vendor’s email gets hacked and the fraudster (using the vendor’s actual email address) claims they changed bank accounts. Following your vendor’s advice, the bookkeeper sets up AP payments to go to the hacker’s account.
Why Is Vendor Fraud a Risk: Modern business relies heavily on email, and bookkeepers often do not question the validity of such requests. The entry-point for hackers – your vendor’s email accounts – are beyond your control. You may pay the fraudster tens of thousands of dollars before the vendor notifies you of the issue.
Mitigating Vendor Fraud with Virtual Bookkeeping Services: Reputable bookkeeping firms implement mandatory verification steps before processing any changes to vendor details or payments. This often involves direct communication with management and the use of secure, authenticated communication channels. Professional bookkeeping firms also participate in continuing education to make staff aware of new fraud attempts. By instituting a verification culture, these services significantly lower the risk of falling victim to such fraud.
Cyber Threats: Leaked Passwords and Spear-Phishing
What are Cybersecurity Threats: Cybersecurity threats encompass a range of tactics, including the theft of passwords or tricking employees into revealing sensitive information through phishing. Compounded with password re-use, this exposes your customer data, financial information, and AP payment systems to nefarious third-party.
Why Are Cybersecurity Threats a Risk: Small businesses often lack the resources and knowledge for comprehensive cybersecurity measures, leaving them vulnerable to attacks that can compromise financial systems. Outsourced IT companies (MSP’s) do audit services to help identify these risks.
Mitigating Cybersecurity Risks by Virtual Bookkeeping Services: Outsourced CFO firms utilize advanced security tools, such as password managers and two-factor authentication, to protect access to financial systems. Continuous education on cybersecurity threats and how to avoid them is also a priority, ensuring that staff remain vigilant against phishing attempts. Lastly, these firms maintain significant cybersecurity insurance policies as a financial backstop against leaks. This multi-layered approach to security is typically beyond the capacity of small businesses to implement on their own.
Internal Embezzlement through Fake-Vendor Schemes
What is Internal Embezzlement: Fake-vendor schemes involve employees creating fictitious vendors and then approving payments to these non-existent entities for personal gain. The vendors are often paid to a PO Box under the employee’s name (or a trusted family member.)
Why is Embezzlement a Risk: Small businesses with dozens of vendors are easy targets for this scheme, as the management cannot keep track of every vendor. An admin or bookkeeper trusted to manage AP can embezzle hundreds or thousands per month without others noticing.
Mitigating Embezzlement With Virtual Bookkeeping Services: The structural separation of duties in remote bookkeeping means no single person has the authority to add vendors, approve invoices, and execute payments alone. This not only prevents the possibility of such fraud but also ensures a comprehensive audit trail for all transactions. Advanced software solutions offer additional layers of oversight, flagging unusual activity for further investigation.
No Need to Reinvent the Wheel
All these tools and policies could be implemented by your small business to achieve the same effect, but that is not a smart use of your time and energy. Outsourced bookkeeping services leverage size and scale to deploy policies faster and cheaper than your small business could.
If you do wish to implement best-practice security procedures yourself, engaging fractional CFO and IT consultants is recommended to avoid omissions.
Focus through Strategic Partnership
The decision to outsource bookkeeping isn’t just about managing financial transactions securely; it’s about allocating your resources more effectively. By entrusting financial operations to experts, small business owners can concentrate on areas that directly contribute to growth and customer satisfaction.
Small businesses that embrace outsourced CFO services also gain a strategic partner in navigating the complexities of modern business environments. This collaborative approach to financial management ensures not only the security of transactions but also the sustainability and scalability of the business itself.
In conclusion, while the prospect of outsourcing bookkeeping functions may initially raise security concerns for small business owners, a detailed examination reveals that professional virtual bookkeeping firms offer enhanced security measures. By leveraging specialized expertise, advanced technology, and stringent protocols, these services effectively mitigate common financial risks, allowing business owners to focus on their core operations with peace of mind and confidence.
If you are ready to see if virtual bookkeeping is right for your business, contact us for a free consultation.
This article was written by a CFOshare employee with assistance from generative AI for rhetoric, grammar, and editing. The ideas presented are a combination of the author’s expertise, original ideas, and industry best practices.
