Posts Tagged ‘Background Screening’

Preventing Employee Embezzlement

Wednesday, April 7th, 2010

Office Manager Pilfers $645,000 from Car Dealership

Finance Manager’s Theft Causes Interactive Business to Shut Down

Furniture Store Suffers $250,000 Loss through Bookkeeper

These headlines are real. Every single day, real employees steal loads of money from their employers. In the United States alone, the amount of property and cash stolen by employees adds up to nearly $1 trillion each year. Whether it’s done by taking property or cash out the door, or falsifying balance sheets, deposits, and checks, embezzlement is a huge problem for businesses.

Often, employees who are charged with embezzlement have a fiduciary relationship with the employer—they are in a position of trust, with access to bank accounts and financial records.

How do they do it? Some embezzlers set up relatives or themselves as phony vendors in the bookkeeping system, then pay phony invoices with real company checks. Others just write checks to themselves or pay their personal bills with company checks.

Embezzlers often start out with small amounts, gradually building up to larger sums when they don’t get caught. Others tell themselves they’ll take the money “just this once,” but find they are unable or unwilling to stop—even after the credit card is paid off, their child’s medical expenses are paid, or they buy themselves a new car.

The guilt felt by an embezzler is often replaced with justification that they are undervalued or underpaid, and therefore the company owes them the money they are stealing. Others feel no guilt whatsoever, and are simply stealing for their own financial gain. For some employees, opportunity is the only “license to steal” that they need.

So how does an employer remove opportunity from the equation—and prevent employee embezzlement?

Be diligent: Managers and owners must have their hands in the business. Know where records are kept, and review them regularly. Are bills or checks outstanding? Are invoices missing? Be an authorized signer on bank accounts, and review activity and statements online. Keep tabs on petty cash, deposit slips, and profit and loss statements.

Listen: Don’t discount when customers complain about double billing—it could be a sign that checks are being detoured to an employee’s account. And if employees report suspicious behavior among their ranks, deal with it immediately. Let employees know you trust them, and care about their job satisfaction. Nip bad attitudes in the bud.

Pay Attention: Employees who regularly offer to work overtime are either great to have, or a potential problem. But what about when the workload doesn’t require it? Staying late with no supervision—especially for an employee with access to cash and financial records—is something embezzlers do.  Embezzlers also spend money they don’t earn—so watch for signs of spending above salary should allow. Driving a new car, showing off expensive jewelry or bragging about trips and pricey restaurants are potential warnings.

Screen employees: Pre-employment background screening is critical to prevent fraud. But don’t stop there—occasional screening for established employees who have access to fiduciary information is also essential.

Employers don’t need to be paranoid about employee fraud. Reasonable safeguards and common sense supervision of employees is often all that is needed to prevent embezzlement. But even the sharpest managers have been fooled by embezzlers—and it can happen to any business.