Does your company have one person who handles all the bookkeeping and accounting tasks? If so, you have given that employee the “keys to the henhouse” in terms of the company’s financial resources and the means to cover up embezzlement.
Of course you want to think the best of your employees, but as a wise business owner you should also cover your assets. Common tasks that could leave you vulnerable may include receipt of the daily mail, management of your accounting software program, posting to your accounts receivable ledger, and control or access to the monthly bank statement.
Our firm is often asked to assess the extent of an embezzlement loss once it has become known. We also are asked to provide office and accounting procedures that will help the company safeguard against embezzlement. Although embezzlement can occur in many different ways, it is surprising how most forms of theft could be prevented by adjusting office procedures and implementing a few basic rules.
Here are a few important tips to protect your company:
- INDEPENDENT REVIEW OF THE MONTHLY BANK STATEMENT. The bank statement mustbe received, reviewed and reconciled by a different employee than the one(s) who manages your other key bookkeeping functions. In order to cover up embezzlement, the guilty employee often needs access to the monthly bank statement. For a very small business, it may be the business owner who needs to do the monthly review. This simple step would eliminate many forms of embezzlement loss that we see occur.
- ROTATE TASKS DURING VACATIONS. Make sure your employees take their vacations andeach person’s tasks are performed by another person during the absence. Don’t let your employee tell you or other employees to let the work pile up until s/he returns. If there is not another employee that can perform the tasks (which itself is a sign of trouble), then consider hiring an outside accountant or bookkeeper during the vacation.
- SMALL BUSINESS OWNERS – BE INVOLVED IN FINANCIAL OVERSIGHT. Review your business financial statement and bank statements on a regular basis. If you are unfamiliar with your financial statements (as we unfortunately find is often the case) then takes steps with your accountant to learn how to “read” your balance sheet and profit and loss statement. Your employees know if you are not paying attention to such matters. Each month, after the accounts are reconciled, you should see the following reports: Profit & Loss Statement, Balance Sheet, and Reconciliation Report. On the last day of each month ask to see a list of the activities. Once the bank statements are reconciled, and you get the reconciliation report and other financial reports, you can compare to see if anyone is “cooking” the books.
- IMPLEMENT KEY ACCOUNTING PROCEDURES. Your company should have a written procedures manual that covers the various accounting functions, among other tasks.
- TECHNOLOGY TODAY OPENS THE DOOR FOR EMBEZZLING. Online bill paying can be handy but it creates an easy avenue for employees to pay their own personal bills, or take extra payments and extra paychecks. I do not recommend online bill paying for business, but if this is an avenue you would like to take, make sure you review the list of payments prior to submitting.
- ASSUME ANYONE IS OPEN TO DISHONESTY. The business owner is always shocked when the embezzlement occurs and can’t believe that a trusted, long term employee would steal. Some of the most outstanding people can be tempted and go astray in the face of personal problems which could include high medical costs, marital discord, or substance abuse and other addictions.
Remember, the most common forms of embezzlement can be prevented by implementing these few basic rules. If you are paying attention, there will be less chance of temptation. Knowing what’s going on in your business if the best protection.