4 Risks of Having Your Tax Accountant Do Your Bookkeeping

The Risks of Combining Roles: Why Your Tax Accountant Shouldn’t Be Your Bookkeeper

For many small to mid-sized businesses, managing finances efficiently is crucial to sustaining growth. Often, owners attempt to streamline processes by having their tax accountant handle bookkeeping as well. While this might seem like a cost-effective and efficient choice, combining these roles can expose a business to serious risks. These risks include a lack of checks and balances, potential conflicts of interest, and an increased chance of errors or fraud. Studies and real-world cases of fraud have highlighted the dangers of blurring these lines between roles.

In this article, we’ll break down why keeping these functions separate is so important, and how the right setup—such as a fractional accounting department—provides a safer, more reliable approach and is the best bookkeeping for small business.

A tax accountant’s primary role is to help a business meet its tax obligations while strategically optimizing its tax position. Bookkeepers, on the other hand, are responsible for recording day-to-day financial transactions—ensuring all financial information is accurate and up-to-date. When the same individual is handling both, the potential for conflict of interest arises.

Case Study of Fraud
One notable case involves a small retail business owner who entrusted all financial functions, including bookkeeping and tax preparation, to a single accountant. The accountant manipulated the business’s financial records to appear profitable for tax advantages while skimming money from daily receipts. Because the bookkeeper and accountant were one and the same, there were no regular audits or reviews to catch these discrepancies. By the time the fraud was detected, the business had suffered losses amounting to nearly $200,000.

Segregation of duties is a foundational internal control in accounting, reducing the risk of fraud and error. In any well-managed accounting setup, each role has clear responsibilities: a bookkeeper records transactions, while an accountant or controller reviews these records to provide higher-level insights and tax guidance.

According to the Association of Certified Fraud Examiners (ACFE), lack of segregation of duties is one of the top contributors to occupational fraud. The ACFE’s 2022 Report to the Nations found that small businesses experience higher rates of fraud precisely because of limited internal controls, with nearly 42% of small business fraud cases involving accounting or payroll. In many of these cases, it was discovered that a single individual was handling multiple accounting functions with minimal oversight​.

Without separate, independent oversight, financial transparency declines. Combining bookkeeping and accounting functions means that errors are more likely to go unnoticed, while fraud becomes easier to hide. As noted by research from the Journal of Accountancy, small businesses are especially vulnerable to occupational fraud when internal controls are lacking, which often results from having the same person manage multiple financial duties.

A tragic example is the story of a small healthcare clinic in the Midwest. The owner delegated both bookkeeping and tax preparation to a long-time accountant. Over a period of five years, this accountant siphoned off nearly $300,000 through untracked checks and erroneous financial records. Because there were no routine reviews by another party, these transactions went undetected for years. The clinic, unable to recover from the financial blow, was eventually forced to shut down.

While bookkeeping and tax accounting may overlap, each requires a distinct skill set. A dedicated bookkeeper has the skills and knowledge necessary for managing the intricacies of tracking revenue, expenses, and reconciliation efficiently. An accountant, by contrast, is focused on interpreting those numbers for high-level financial strategy, tax compliance, and advisory. When one person handles both, it’s common for one area—usually the meticulous detail required for daily bookkeeping—to suffer.

The IRS warns that, especially in small businesses, accounting errors can easily occur when someone without the proper specialization is handling the books. For example, certain expenses may be incorrectly categorized or missed altogether, leading to discrepancies at tax time. This can result in penalties and interest fees, potentially costing the business far more than it would have spent to retain dedicated, specialized professionals.

Fractional accounting services offer an ideal solution to these risks. Unlike a traditional bookkeeper or a single accountant, a fractional accounting department provides multiple professionals who collaborate to manage and review financial records. In a fractional accounting department:

• Segregation of Duties: Multiple team members are responsible for specific functions, ensuring proper checks and balances.
• Increased Accuracy and Transparency: Routine reviews by specialized professionals catch errors early, while ensuring transparency.
• Scalability: Services can be adjusted as the business grows, ensuring the right level of support without the costs of full-time staff.

Fractional accounting departments include bookkeepers, staff accountants, and managers, all of whom collaborate to ensure that finances are managed with accuracy and integrity. This team approach provides business owners with peace of mind, knowing that their financials are in the hands of professionals who maintain transparency, accountability, and specialization.

While combining roles might seem convenient, the risks it introduces can outweigh any short-term cost savings. Real-world cases of fraud and studies from organizations like the ACFE and IRS demonstrate that a lack of proper role segregation increases the likelihood of costly errors and even fraud. By maintaining separate roles—or opting for a fractional accounting department with proper internal controls—businesses can reduce these risks, improve accuracy, and focus on sustainable growth.

A dedicated, multi-role accounting approach is an investment in financial safety and the success of the business. For those looking to grow securely, a fractional accounting department provides the specialized support, oversight, and scalability necessary to protect and optimize business finances, and is the best way to have accounting services for small business.