Follow the money: Prevent embezzlement
With the economy improving, John was thrilled to see his small company starting to boom. With all the new business, John was so busy signing new accounts and training his new staff members, he delegated the bookkeeping responsibilities to a long-time employee he trusted. As time passed, John started noticing discrepancies in the business’ account and discovered the employee had been embezzling money from the company. Unfortunately, embezzlement is not uncommon and is often difficult to detect. What could John have done differently to prevent this kind of problem?
Embezzlement is a crime of opportunity and trust. A person who is trusted is placed in a position that allows him or her complete access to the financial data of the business, typically with minimal or no oversight by the supervisor or owner. The best way to prevent embezzlement is to first, be honest yourself in your activities. Leaders must lead by example. Secondly, pay your employees well and treat them well. Third, hire the right employee. Start by checking all references. Consider obtaining fidelity bond insurance coverage on this employee. If the employee is not bondable, do not place them in the position of handling your financial matters. Run a criminal background check.
Here are some simple techniques that decrease the opportunity and temptation for embezzlement:
1. Assign designated duties. Do not have only one person handle the incoming mail, deposits, balance the checkbook and send statements. This is difficult in smaller businesses with only a few staff members. In this case, the owner needs to handle or outsource payroll, tax preparation, balancing the checkbook and management of the accounts payable. If the owner chooses to outsource this work to a bookkeeping company, the same due diligence of inspecting the bookkeeper’s work is very important.
2. The owner should review reports. Every day, you should have an end-of-day report, an adjustment report, a history of payment that breaks down cash receipts, credit card payments, checks and outside financing for services on your desk. The owner should compare the deposit slip receipt to the deposit. Do an occasional mini-audit of the books. Let your staff know you’re looking daily by questioning them. For example, say “I see Mrs. Smith didn’t pay for today’s fee; is there a reason why?” This shows your employees you are keeping an eye on the day’s activity. These checks take 5-10 minutes of your day.