Tips to Avoid Embezzlement in Your Business
Embezzlement is a theft by a business partner, employee or other trusted individual in a business setting. It usually involves diverting company funds or resource, but it could also include the theft of merchandise, supplies, equipment,inventory, or even business data.
Tips for Protecting Your Small Business from Embezzlement
Embezzlement happens to small to medium size businesses when they lack the checks and balances that larger companies have in place. In a new business start-up, your employees are often your family and friends, so you trust them with customer data, inventory, the checkbook, the cash drawer – just about everything. Since your employees are your friends and family, what could go wrong?
They might be your friends and family, but they still go home every night and deal with financial pressures and family issues. Maybe one day, they’ll be a little too tempted and skim a little off the top. Protecting your business doesn’t mean you don’t trust your employees; it just takes the temptation away.
Check out these six tips for protecting your business:
1. Separate Financial Duties
By separating financial duties and spreading them between several people, you’ll decrease the opportunities someone has to steal from you. Separating financial duties means that:
whomever cuts the checks should not sign them;
someone who doesn’t run payroll should hand out the checks if you’re not using direct deposit;
whoever handles the accounting should not open the mail, especially anything related to bank statements, credit card statements, the IRS, or state tax agencies, and the owner should have duplicate bank statements sent to her at home.
2. Have a Formal Screening Process for New Hires
When you’re hiring a new employee, take your time to make sure they are trustworthy Check out their social media accounts, call their references, and run a background check. Better to find out early if your new bookkeeper served time for embezzlement.
3. Deposit Cash Daily & Reconcile Monthly
Cash sitting around can be tempting for some employees. Deposit cash every day so there’s not too much lying around. You should also reconcile your bank statement at least once a month. By reconciling your bank statement regularly, you’ll be able to catch potential issues more quickly.
4. Track Petty Cash
Petty cash is often an easy target because a lot of small businesses don’t keep a close eye on it. Take away the temptation by requiring all petty cash transactions to have a petty cash receipt or log to support the transaction. If the petty cash has to be refilled, require multiple signatures.
5.MBWA – Manage by Walking Around
Managing by walking around will show your employees that you’re keeping an eye on things without micromanaging them. Your employees are more likely to toe-the-line if they know that you’re keeping an eye on what goes on in the company.
6. Have a written Expense Policy
By having an expense policy and sticking to it, your employees will have to submit receipts and other paperwork to receive reimbursement. This will stop people from ordering extravagant room service or a massage when they’re on a business trip.
Early Warning Signs
Keep an eye out for partners or employees who might be tempted to commit embezzlement. Common signs to watch for include someone who;
lives beyond their means
has financial problems
has control issues
is going through a divorce or other family problems
has been charged with a felony
submits extravagant expenses from business trips
Pay extra attention if the partner or employee has unusually close relationships with vendors or customers;
refuses to take vacation, works a lot of overtime or always wants to take their work home.
You should also be alert to petty cash that seems to disappear too fast or office supplies that go missing.
What Do I Do If I Suspect Embezzlement?
If you suspect that one of your partners or employees is stealing from the company, be careful not to assume they’re guilty. If it turns out they’re not stealing from you, they could file a lawsuit against you. When you’re interviewing the suspect, don’t accuse them – just gather the facts and the evidence. You want to understand what happened and find out if anyone else was involved.
Before you confront the suspect, talk to a business lawyer experienced in embezzlement to discuss the best course of action and get recommendations for a private investigator or forensic accountant to assess the situation. These firms will obtain, preserve and separate evidence, so when it is time to talk to the suspect or law enforcement, you have the facts on your side.
