Employee theft and embezzlement can happen in any business.
However, it hits smaller businesses in larger numbers, in
part because too often owners don’t have the right checks and balances in
place.
The
following are five tips that can help you greatly reduce the chance that
you are victimized.
1. Know
that it can happen to you.
If we’ve
heard it once, we’ve heard it a thousand times: “I trust my bookkeeper.” Almost
every case of embezzlement in small businesses involves a person who is
trusted, taking money from an unsuspecting business owner.
We’ve seen a lifelong best friend steal from her business partner.
We’ve seen a man take money from his siblings. We even know of a CPA who
embezzled from his client.
Honest,
hardworking entrepreneurs have been taken for tens and hundreds of thousands of
dollars. The owner’s mistake: they trusted too much. When you think it
can’t happen to you, your business is the most susceptible.
As Ronald
Regan said, “Trust, but verify.”
Many
business owners don’t want to put financial controls in place because they are
afraid of making their bookkeeper feel distrusted. That logic is flawed. An
honest bookkeeper would want checks and balances so that there could never be a
question about his or her veracity. In fact, the bookkeepers we have seen
complain the most about not being trusted are the ones who were later found to
have been stealing from the company.
Further,
it’s fundamentally unfair to your bookkeeper to give him or her unfettered
access. At some point he or she is going to face financial difficulties --
almost all of us do. Why tempt a person when he or she is most vulnerable by
giving him or her uncontrolled access to your checkbook?
2. Run
all receipts and disbursements through a checking account.
Put any
money that comes into the business into a checking account. Take any money that
leaves the businesses out of a checking account. This provides a record of
receipts and disbursements that cannot be tampered with because it’s controlled
by the bank.
Bookkeepers
can put false entries into financial statements, but they can’t manipulate cash
in the bank. Everything should be reconciled to the checking account. The
reconciliation should happen monthly and the owner should review it in a timely
manner. It only takes a few minutes.
3. Create separation of duties.
We advise
that the same employee not set up a vendor, approve a payment and write
the check. It’s better to have two people involved when money leaves the
business. In the same way, one employee should not set up an employee on the
payroll system and cause a paycheck to be cut.
One
bookkeeper, who is now living at the expense of the federal government, set up
a fake employee to funnel money into her own account.
4. Review
statements.
The owner
should periodically and unpredictably review bank statements, credit card
statements and statements from the payroll company showing what each
employee was paid. This should include looking at cancelled checks.
After
years of blind trust, one business owner finally reviewed a bank statement and
found that her trusted bookkeeper was making cash withdrawals from ATMs,
writing checks to himself and using his company debit card to purchase
personal items such as groceries.
5. Audit
the books.
Periodically,
have an unrelated third party review your books and accounts. This doesn’t have
to be a comprehensive audit of every transaction -- spot checks will do.
The cost is minimal and the deterrent can save you thousands.
Employee
theft and embezzlement is a massive problem. Statistics reveal that it results
in one-third of all small-business failures. Set up the simple financial
controls necessary to prevent it. Don’t let your business become yet another
statistic.
Source: Entrepreneur.com
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