Accounting Department Red Flags: Is It Poor Training, Incompetence or Theft?

April 3, 2018

When things go wrong in your accounting department, you’re sure to feel the pain — especially if errors are common. Problems and irregularities can crop up for several reasons. For instance, your accounting staff might be inadequately trained, or they’re just not suited for the job.

But the cause could also be much worse: someone is stealing from your company.

In this guide, we break down what to look for and how to respond if you suspect bad accounting practices or even an incompetent accountant is jeopardizing your financial integrity.

Common Accounting Red Flags That Shouldn’t Be Ignored

Everything from inadequate training to incompetence could be the cause of repeated but unintentional errors. It’s important to find out why these mistakes keep happening in order to institute changes that will make a real difference, whether by upgrading your hiring practices, your policies and procedures or your training regimen.

Here are a few clues indicating you might have an accounting department that is not up to par for one reason or another:

You have a large number of voided checks.
There are a number of uncleared checks in the bank reconciliation that are aged over six months.
There are balances in ambiguous accounts such as Ask My Accountant, Unreconciled Difference, Clearing Account, Uncategorized Assets and Expenses and Miscellaneous.
There’s an absence of a credit card general ledger account on the balance sheet, and payments get coded to one account rather than to individual transactions.
Basic accounting practices such as obtaining W-9s from vendors, filing 1099s, closing the books, and performing reconciliations in a timely manner are neglected.
Accounts receivable regularly age into the 90-day bucket and older.
Credit memos are not appropriately applied to the correct invoices in A/R.

These are all signs of a bad accountant or, at the very least, an underperforming accounting process. If these issues sound familiar, it may be time to reevaluate your internal systems and talent.

Not-so-Innocent Behavior

Mistakes happen — but when they persist, especially from the same person or process, it’s worth asking: Is this an incompetent accountant, what to do now?

Repeated errors with no resolution may suggest deeper performance issues or, worse, deliberate misconduct.

Here are a few red flags pointing to possible deliberate acts or an environment where such problems could easily occur:

A key accounting staffer is hesitant to cross-train others or to share his or her knowledge with co-workers.
The staffer rarely takes a vacation day, prefers working late and alone and rarely delegates their work responsibilities.
There are minimal controls in place and no segregation of duties.
There is inadequate or no support provided for payments made. Before any payment is signed, proper support (e.g. invoice, inventory receipt) should be attached.
Cash flow projections are regularly off by a material amount and there are large balances in non-descriptive accounts such as “Other.”

These behaviors often indicate bad accounting practices and may even be attempts to cover up fraud.

How to Take Action: What to Do If You Suspect Problems

If you suspect you’re dealing with poor accounting practices or suspect an incompetent accountant, what to do becomes a critical question. Here’s a starting point:

Perform an internal review: Audit permissions, procedures, and staff responsibilities
Establish separation of duties: No one person should control all aspects of a transaction
Implement a regular cross-check process: Each task should be verified by another team member
Get an external evaluation: Bringing in a third party can uncover what’s not visible from within

All potential red flags could have innocent explanations or point to inadequate training or capabilities, which is why Audit Readiness evaluation can be pivotal. Nevertheless, you should make sure your department operates in a way that reduces temptation or brings deliberate acts quickly into the light.

For instance, make sure that all accounting tasks are cross-checked by others in the department. And keep to a minimum the number of people who have access to the company’s books and bill-paying authority.

At Wiss, we can help you assess your accounting department, get answers, and put policies and procedures in place that will help boost the level of professionalism, increase efficiency, reduce common mistakes, and help protect against malfeasance through our comprehensive Advisory Services.

Frequently Asked Questions

1. What are the signs of a bad accountant?

Common signs of a bad accountant include missed deadlines, frequent errors in financial reports, vague or incomplete documentation, and a lack of transparency. If your accountant avoids cross-training, never takes time off, or refuses to explain key processes, those are serious red flags worth investigating.

2. What are bad accounting practices I should look out for?

Bad accounting practices include failing to reconcile accounts regularly, misclassifying transactions, ignoring regulatory requirements (like W9s or 1099s), and relying heavily on catch-all accounts like “Uncategorized Expenses.” Over time, these issues can lead to compliance risks, cash flow problems, and even fraud.

3. What should I do if I suspect I have an incompetent accountant?

If you’re facing an incompetent accountant, what to do first is evaluate their recent work and identify recurring issues. Consider a third-party review, retraining, or replacing the individual altogether—especially if their errors have financial or legal implications. Don’t delay; unresolved accounting issues can escalate quickly.

4. What are the consequences of poor accounting practices?

Poor accounting practices can lead to financial misstatements, tax penalties, missed growth opportunities, and reputational damage. In worst-case scenarios, they can mask internal fraud or drive investor mistrust. Early detection and correction are key to minimizing risk.

5. What accounting red flags point to possible fraud?

Accounting red flags include unusual transaction patterns, frequent overrides of internal controls, unexplained balances in “Other” accounts, and one employee having excessive control over financial processes. These may indicate deeper issues like theft or embezzlement and should be addressed immediately.