Embezzlement is a risk faced by all businesses. Having seen yet another news story about how a business lost money to a thieving employee, I feel compelled to offer a few pointers (even though it really doesn’t have a lot to do with technology).
Rule No. 1 is TNO: Trust No One. The employee of yours who is most likely to embezzle is the one doing your trusted work: receiving money and paying the bills. Unless this person is your spouse, you cannot assume that he or she is 100% trustworthy. Even your spouse could be stashing money away planning to run off. No matter how much confidence you have in the person handling your business finances, do what Ronald Reagan said: Trust, but verify.
Rule No. 2 is Open Your Own Bank Statements. And do it as soon as they arrive at your office. The number of cases I have seen where the business owner did not review the checking account statements and lost money to embezzlement is astounding. If the embezzling employee knows that you never review the bank statements, she knows she can write checks to herself, her friends, her mortgage company, her dog, any anyone else. Yes, reconciling the bank statement can be a pain, but you have to review the statement (and the check images!) before you let someone else reconcile it. Make sure the person who receives the mail knows that the bank statements are to go directly to you and no one else.
Rule No. 3 is Open Your Own Credit Card Bills. Again, as soon as they arrive. If you aren’t watching the transactions on your credit cards, the employee knows he can charge those airline tickets to Bermuda and not get caught. Your employee and his wife will enjoy their trip that you’ve paid for.
Rule No. 4 is Beware the Employee Who Never Goes on Vacation. Committing financial fraud on your business is a full-time job. If your bookkeeper never takes a day off, never goes on vacation, comes in even when sicker than a dog, be suspicious. The employee very well may be there to make sure that you don’t have a chance to stumble onto something.
There are other rules to follow, but these four are a good start. Ask your CPA about implementing proper controls and systems, and then follow her advice.