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How to protect yourself from employee embezzlement
Guest Post | September 4, 2017

Photo: Keith Cooper/Flickr

How safe is your business from fraud? While many worry about someone hacking into their systems, you’re more likely to experience embezzlement by a trusted employee.

About 28% of small businesses have this unfortunate experience, including a few of my clients over the years. And one client learned that her trusted bookkeeper of 15-20 years had been stealing from her for many years.  Let’s face it – most who embezzle have your trust – otherwise it would be much harder to steal from you.

Embezzlement is costly on many levels.  It’s not just the dollars lost, which can be significant, but it’s also the dollars to fight it (legal, accounting, staff time), the dollars to pay penalties and interest on unpaid/underpaid taxes/bills, the time to fight it, and the emotions of learning a trusted employee/friend has stolen from you.

This happens more easily in a small business because there are fewer resources to segment work and often, owners are unaware of controls they can put in place.  The generally accepted rule of thumb is 10 percent of people will never steal no matter what, 10 percent of people will steal at any opportunity, and the other 80 percent of employees will go either way depending on how they rationalize a particular opportunity. So it’s the 80 percent that you direct your energies for prevention.

There are three factors, that when combined, lead to fraud.

  1. Pressure(often a financial need such as medical bills, divorce, debt;
  2. Opportunity(i.e. how easy is it for them to steal) and
  3. Their rationalizationfor stealing from you.  While you can’t affect their perceived need or rationalization, you can direct your energies towards lowering opportunities.

As business owners, we want to delegate and bookkeeping is frequently one of the first tasks to be delegated.  While you may want to delegate the books completely, remember that the buck stops with you, the owner. You’re the one who will get assessed penalties and interest for missed tax payments, and you feel it most when your bottom line is less because of theft.

Checks and balances you should adopt

Put these checks and balances into place both in procedures and in QuickBooks to limit opportunity for theft or discourage most employees from even trying.

  • Run a background check on employees (I had one client who unknowingly hired someone as her bookkeeper who was out on parole from embezzling!)
  • Have separation of responsibilities as much as possible. i.e. use different people for accounts receivable, accounts payable, and payroll.
  • Checks and payment safeguards – Check fraud is more prevalent than credit card fraud. In fact, four out of five fraud attempts are committed through checks.
    • Use secure checks, i.e. checks that are more resistant to fraud.  The Intuit checks you can order through us were developed with the assistance of Frank Abagnale(of Catch Me if You Can), now a fraud consultant for over 40 years.
    • If someone other than you can sign checks then have a policy that all checks over a certain dollar amount require your signature or two signatures.
    • Don’t sign blank checks.
    • Keep blank checks locked away.
    • Review Reports: Voided/Deleted Transactions, Missing Checks, Audit Trail.
    • Pay bills electronically.
    • Set up automatic payments.
  • Customer Payments
    • Give customers the opportunity to pay you online via ACH or credit card – then you remove a temptation.
    • Use check scanners or Intuit’s e-check so checks go straight into your bank account.
    • Make deposits yourself.
  • Bank statements
    • Have bank & credit statements mailed to your home so you can review before delegating.
      • If you are paperless, make it a point to review.
    • Reconcile bank and credit card statements regularly – either yourself (you can pick up on problems more easily) or have one person review the reconciliation done by another.
  • Close the books after certain periods (monthly, quarterly, or annually), so changes can’t be made except by authorized personnel and run the Closing Date Exception Report periodically.
  • Monitor
    • Accounts Receivable (Open Invoices),
    • Accounts Payable (Unpaid Bills) and
    • Payroll (timesheets, wages, overtime, deductions and commissions)
  • Other security measures
    • Every user should have their own login, including the business owner, who should also be the administrator of the account.
    • Don’t keep your QuickBooks openwhen you walk away from your desk or office.
    • Limit user access –(e.g. they can create & print, but not delete or change)

EDITOR’S NOTE: This article was written by Monica Muir of  Muir & Associates. She is an NALP consultant member. The article was originally published on NALP’s Landscape Industry Essentials.

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