Protect Your Business From Embezzlement

There was an insignificant story in the Amarillo newspaper last week about a former credit union employee who was sentenced to 30 months in federal prison for stealing $221,000 from her employer over a seven-year period. At least it seemed insignificant, based on the placement in the paper. But to her employer, I know it was very significant.

I’ve advised many employers in the Panhandle of Texas who have lost money to thieving employees. It has happened to large companies, small businesses, non-profits and for profits. I’ve dealt with embezzlement at banks, car dealerships, doctor’s offices, law offices, construction companies and charities. Each employer feels embarrassed to have been deceived, angry over the missing money (often which will not be recovered) and mistrustful of all employees from that point forward. Those reactions are understandable, since most embezzlement could have been prevented with some careful policies and practices.

Of the three factors leading to embezzlement, motivation (financial pressures), opportunity (access to company cash or accounts and a lack of corporate controls in place) and rationalization (its just a loan or my rich boss won’t miss it), opportunity is the only part of the equation that the business can control. Here are some of the ways to do this:

  • Thoroughly screen potential new hires by requiring a criminal history and by talking to past employers.
  • Never let any one employee, no matter how long tenured and how trusted, handle all the bookkeeping. You need a system of checks and balances.
  • Know your employees and consider the telltale signs of a potential problem: gambling losses, large medical bills, credit card debt, a standard of living above all possible income, etc.
  • Make every employee who has access to company funds take a long vacation every year while another employee performs his work and double-checks the procedures the absent employee follows.
  • Never sign checks that aren’t completely filled in or that lack supporting documentation like an invoice.
  • Require two signatures on checks over a certain amount, such as $500.
  • At least once per month, do your own mini-audit. Carefully check company credit card bills, cash flow and deposit slips, accounts payable, and other vulnerable items.
  • Have your business audited annually by an independent accountant.
  • Immediately fire any employee about whom you have strong evidence of theft. This person is not going to be rehabilitated through progressive discipline. And don’t worry about the fallout. If you can prove theft by the terminated employee, you will be protected from unemployment or discrimination claims.
  • Prosecute any thief to the full extent that the law allows. Often this is required by the insurance company if you want to recoup any of your losses. Some employers, like banks, are hesitant to do this because of the bad press it could cause. I think every employer has a societal obligation to prevent this from happening to another business by making sure the theft shows up on that employee’s criminal record from now on.

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