The long-term embezzler is clever and intelligent. This person knows what you look at and will continually modify their behavior to hide unethical and illegal activities. The employee that embezzles is usually one of your most valued employees, and he or she will go out of the way to prove loyalty and trustworthiness.
Many business owners over-trust and don’t believe their employees would steal from them. This isn’t realistic, but the good news is you don’t have to be an easy target.
Business owners and managers that develop strong leadership skills and focus on business management have more profitable businesses, and they also can reduce their risk of embezzlement.
Here are some ways to minimize your risk of embezzlement:
- Be honest about your activities, including business expenses. Lead by example: If you’re using company credit cards for personal purchases, your employees will notice. And if you’re taking long lunches or cutting out early, you might as well be stealing from the company, too.
- Pay your employees well and treat them well.
Hire the right employee: Check all references. Listen to what’s not said. Do a criminal background and credit check. Consider obtaining fidelity bond insurance coverage for employees who handle money. Compare the employment history against the resume. Ask for specific hiring and release dates. A person with a questionable history may cover it by stretching the employment dates.
Unfortunately, a reference check or a background check may not reveal an embezzler. According to the Association of Certified Fraud Examiner’s 2012 Report to the Nations, approximately 87 percent of occupational fraudsters had not been charged or convicted of fraud-related conduct and 84 percent had never been punished or terminated by the employer.
- Understand the character traits of an embezzler. Nearly 70 percent of cases are detected by simply observing an employee’s behavior.
Some common myths to dispel:
- A rural business is at less risk than an urban business.
- Larger businesses or corporate offices are at less risk. The opposite is true.
- Well-paid employees would never embezzle.
- If the owner makes the deposit, the risk is reduced.
- If I look at the basic reports, plus the daily report, I’ll catch someone embezzling.
Decrease the risk
There are hundreds of ways employees can embezzle. This list of techniques to decrease your risk of embezzlement is not meant to include all the ways to protect your business. Sometimes embezzlement is unpreventable, but good business managers can reduce damage to the business by catching theft sooner.
- Designated, segregated duties: Do not have one employee handle the incoming mail and deposits, post completed work, balance the checkbook and send statements. If you only have one employee, consider outsourcing the bookkeeping, but keep an eye on the bookkeeper too.
- The owner should review business reports. Do an occasional mini audit of the books. Let your staff know you’re looking daily.
- Inspect your bank statement. Inform your employees that they are not allowed to open any mail from a banking institution. Even better, have your bank statements sent to your home address if your mailbox is secure. If you pay your bills by mail, your signature should be on each check. Don’t ever use a signature stamp.
- Small things are important. If there is a space between the dollar sign on the check, a check for $500 can become $1,500. Pay attention to the details.
Establish good office policy:
- Make deposits daily, close and balance each day, and bill customers the same day as service is rendered.
- Send periodic statements if service or sales extends over time.
- Review your monthly reports. Each month should be closed out prior to running the reports to prevent changes. Make certain your computers are protected from changes to closed out months (contact your software vendor for this information).
- Write pre-numbered computerized receipts for all cash payments. Don’t accept the response that “the system was down.”
- Monitor petty cash.
- Don’t allow extended after hours work or remote access from home.
- Establish password control for sensitive areas, such as payroll. Offices are going to fingerprint monitors to identify activity as well as monitoring security cameras.
- Watch your overhead numbers: Learn to read your financial statements. You should know the basic overhead numbers for the business.
I’m not suggesting that you become immediately suspicious of your team. Use the above advice to be proactive. You will become a better manager when you implement these steps, protect your assets and enjoy more profitability from your business.
About the Author
Rhonda Savage, DDS, is a motivational speaker on leadership, women’s issues and communication.