Consider these examples of the methods by which employees have been known to steal from their employers:
- Opening a checking account in a nearby community under the same name as the employer company
- Overpaying the payroll taxes or large suppliers and asking for refunds which are then deposited in the employee's new company account
- Convincing the employer that the independent accountant is an expensive luxury which the company can do without now that the employee is available to do financial statements.
- Soliciting the help of a supplier's employee, then overpaying the supplier and sharing the overpayment.
- Opening a checking account with the same name as the employer's major suppliers and then paying invoices twice. The first payment is sent to the supplier, and the second is deposited in the employee's "extra supplier account."
Some small businesses have paid a high price to learn about employee theft. Don't be lulled into thinking it could never happen in your business.
Whether your business deals in products or services and whether you have one employee or many, you should be aware of the signs of employee fraud or embezzlement.
Fraud most often develops over a period of time and will sometimes involve employees with outstanding track records. What would cause a long-term, trusted employee to go bad? Watch for employees who are under new pressures such as:
- Unusually large medical bills.
- Living beyond their financial means.
- Excessive use of alcohol or drugs.
- Large investment losses.
- Excessive gambling.
Also, watch for a growing disregard for the company in favor of personal gain.
What circumstances in your company make fraud or embezzlement easy? Small companies find it especially hard to segregate duties of employees. That can increase the chance of losses to the company. Consider these problem areas:
- Inadequate accounting records.
- Too many related transactions handled by the same person.
- Too close a relationship between your staff and specific staff members of your suppliers.
- An employee who takes very brief vacations or no vacations at all.
It is not necessary that you become paranoid about employee theft. It is wise, however, to have a system set up that makes fraud less likely.
Many businesses have too few employees to provide for proper segregation of the duties. If one employee is allowed to handle too many functions, such as paying bills, collecting receivables, preparing payroll reports, handling petty cash, and making bank deposits, the company is wide open to fraud.
If you're a small business owner, you should stay close enough to the business transactions to be able to spot unusual problems with the receivables, payables, refunds, etc. Ask questions about accounts receivable balances from time to time. Insist on being the first one to open the bank statement. This gives you the opportunity to spot unusual checks, odd vendor names, etc.
Open all incoming mail from customers and vendors. This allows you to see customer complaints and adjustments to account balances. If you pay your vendors by invoice, always pay on the same color of the vendor's invoice. This should eliminate the possibility of paying the same invoice twice, once on the pink copy and once on the yellow copy. Indicate the date of payment on paid invoices.
If you have questions or would like more information on how to protect your business from employee theft, contact our office. We're here to help.