Menu

Legal Issues

Common Sense Steps to Take to Protect Your Business from Embezzlement

by
Sherri Hastings
on
9/30/2018
Common Sense Steps to Take to Protect Your Business from Embezzlement

It's sad but true that if you own your own business and rely on employees to help with its operation, you need to have eyes in the back of your head. As careful as you may have been in your hiring process and as much as you feel you can trust them, the chance that the people who work for you are stealing from you exists. Business owners have been victimized by people as close as long-time friends or family members, and if you don't take measures to protect yourself, theft or embezzlement can happen to you.

There are almost as many methods to steal as there are types of businesses from which to embezzle, and as technology has become more sophisticated, so have the opportunities to use it for ill-gotten gains. Some thieves are as straightforward as to take cash out of low-tech cash registers or petty cash boxes, while others engage in high-tech cyber crimes. The people responsible for buying for the company may be accepting kickbacks from vendors in exchange for paying more than a product is worth. The list is endless, but there are some methods that are more frequently seen than others. The most common methods of stealing from a business include:

  • Taking from petty cash
  • Putting cash payments into their pocket instead of the cash register
  • Making payments to vendors that don't exist
  • Making payroll payments to employees that don't exist or family members
  • Issuing inappropriate or made-up refunds to their own credit card account
  • Using company funds or company credit cards to pay for personal items
  • Taking payments on customer accounts receivables and keeping them, while marking them as paid

All you have to do is look at this list to recognize just how easy it is to be victimized. The first step to protecting yourself is to watch out for these warning signs:

  • Your employee won't cross train to move to another area of responsibility
  • Your employee won't take any time off
  • Your employee won't give up control of the company's financial functions
  • Your employee starts to display an upgraded lifestyle or belongings
  • Your employee takes work home or works overtime all the time
  • Your customer refunds see an increase
  • Your company expenses see an increase
  • Your company's accounts receivable sees an increase in write-offs

 Suspecting that embezzlement is occurring is only half the battle. You need to be proactive to prevent it from happening, and this means segregating duties and putting internal controls in place. Here are some of the most effective steps you can take to prevent theft:

  • Assign responsibility for bank reconciliation to your CPA or an outside bookkeeper
  • Establish a password specifically for issuing credit card refunds
  • Assign responsibility for opening the mail to more than one employee
  • Have one employee responsible for applying payments to customer accounts and another responsible for making deposits
  • Establish an approved vendor list and require approval and justification for adding new vendors
  • Carefully review monthly bank statements, cancelled checks, payroll and monthly credit card statements
  • Where variances occur and trendlines change, make sure that you know why

For those whose businesses are too small to assign more than one employee to financial functions, the best move is to seek outside help from an attorney, a CPA, a part-time comptroller, or even your bank. These professionals can help you detect when the numbers don't add up and determine the source of the problem.  Taking these steps will not only save you from financial losses, but will also send a clear message to your employees about how seriously you take the threat of embezzlement.

It's hard to acknowledge that a person who you've trusted with your business can turn on you, but ignoring your suspicions leads to nothing but further loss. If you know that something is not right, bring in a financial expert who will either assure you that all is well or help you root out the problem.

Tim Murphy, CPA writes for CountingWorks, an accounting news and advice website. Reach his office at [email protected].

share this post
Search for matches...
Sherri Hastings

Sherri Hastings

Tim Murphy is the managing member at Murphy & Murphy, CPA, LLC, a full-service certified public accounting firm, with emphasis on tax preparation, audits of governmental, educational, and non-profit entities, retirement planning, estate planning, business valuations, litigation support, and banking. He is a Certified Public Accountant in Maryland and Virginia. Tim is also a CERTIFIED FINANCIAL PLANNER professional, Personal Financial Specialist, Accredited Estate Planner, Certified Valuation Analyst, and Investment Adviser Representative.

MURPHY & MURPHY, CPA, LLC.
★ ★ ★ ★ ★
49 reviews

Maryland

Firm Profile

Recommended Professionals

In the face of economic uncertainty, TaxBuzz is the industry's most up-to-date tax information.

Join 60,000 who get our weekly newsletter. No spam.

We know tax and accounting issues are complicated.

Do you have additional questions on this topic for this author?

Related Posts

Latest Posts