"When will one of my employees steal money from me?" This is not a question many business owners ask themselves, but it should be. Every business has some inherent risk of embezzlement, but some business owners create an environment that makes embezzlement very easy. The following tips can help reduce the temptation and occurrence of financial theft in your company.
"Hiring trustworthy people means that you don't have to worry about embezzlement, doesn't it"?
The exact opposite is true. The more trust you place in someone, the more you leave the door open for embezzlement. "They were like a member of my own family" is the phrase you hear from many business owners after an embezzlement is discovered.
The first safeguard against embezzlement requires a shift in thinking — as hard as it is, you need to realize that any of your employees have the capacity to steal from you. It doesn't mean they will, but it means you should set up systems to reduce the ease in which it can happen. In our household, we refer to this thinking as "trust is not a control point."
How often do business owners and managers trust people with financial responsibilities without considering the potential consequences? All the time. I once worked as a financial manager at a company that was investigating an embezzlement issue in my department. I asked if the financial examiners wanted to review my accounting reports. Given that these people were there to investigate financial fraud, you would have expected them to jump all over this offer. Instead, their surprising answer was, "No, we trust you." That should never be an answer when dealing with people who handle company finances.
Most small business owners track their expenses using QuickBooks. Did you know it is very easy to change the dollar amount of a transaction in QuickBooks to hide evidence of embezzlement? A few quick keystrokes is all it takes. Do you know who your vendors are and why you are paying them? Anyone with access to QuickBooks can set up a fake vendor and make payments to them for seemingly valid reasons. Your accountant may not uncover these discrepancies in an annual audit because the transactions appear to be correct.
There are a few very simple ways to deter this type of fraudulent activity. Make sure the monthly bank statements are being sent to your home address, not work. Open the monthly statement and look for odd transactions and amounts. Set up your banking accounts to require two signatures and make sure the bank knows this is your standard policy. Don't use a signature stamp. These easy checks and balances can go a long way in deterring the opportunity for embezzlement.
You didn't plan to hire dishonest employees, and they probably didn't plan to steal from you. However, many people are under an enormous amount of financial pressure and the temptation to steal can override their basic honesty.
Embezzlement can start off so innocently — someone needs a few hundred dollars that they mean to return when they have the money, but that time never comes. Most embezzlement cases begin with the theft of small amounts of money that quickly add up over time. "Borrowing" $100 a week seems like a pretty small amount, until you realize it adds up to $52,000 over a period of 10 years. And if I can easily "borrow" $100 a week, why not increase that to $200 a week when a financial emergency happens at home? Most people don't intentionally start down this slippery path, but it is hard to change direction once they do.
Embezzlement can seem easy to spot; the trick is to notice the warning signs before your money has disappeared. Employees making the following comments should be a warning to you:
"You're so busy…why don't you let me handle the banking transactions for you. All I need is your signature stamp." (Translation: With your signature stamp, the company checking account is one big piggy bank for me.)
"I'm too busy to take any time off, even when I'm sick." (Translation: If I take time off, you might discover what I've been doing, so I will be here every day.)
"I know I seem protective of my work, but I want to make sure that no one messes it up." (Translation: I don't want you looking at my work, so I'm going to make sure you don't, even if I have to bully you or act incensed that you don't trust me to do my work correctly.)
If any of these statements sound familiar, you might have some embezzling going on. Another warning sign is an employee who seems to be buying things beyond their financial means — an expensive car, jewelry, travel. This can be an indicator that they have more money flowing in than their current paycheck would indicate.
Each business owner should ask themselves "When, (not if) will someone steal from me?" Embezzlement happens all the time, at all levels of the organization, and by all different types of people. Putting some safeguards in place can save you the time, headache and emotional turmoil of embezzlement.