July 03, 2017
These are the toughest of all cases for us, as most times the embezzlement is severe leaving the company in deep trouble. In all the cases I have seen, the embezzlement had a devastating effect on the business, and in some cases, the company went out of business.
Never give in to the temptation that your key employees can be trusted totally. In almost all cases the business owner was shocked when learning the employee was stealing money and product. “They were like family to me,” or, “I thought I could trust them with my life,” are things we commonly heard. Sadly, we sometimes learned the embezzlers were blood relatives of the business owners. The following are some suggestions to help you avoid embezzlement.
Have a good computerized bookkeeping system set up by an accounting professional. If you need one, employ a competent bookkeeper and ask your CPA for guidance on conducting periodic security audits.
Don’t give one person too much responsibility. Remember that checks and balances are designed to ensure proper divisions of business functions are in place. Seek guidance to make sure you have proper checks and balances.
Stay involved in your business and with your employees. “Inspect what you expect” is a good motto. Educate employees on the negative impact of theft. Solicit their support and involvement in the prevention and detection of theft.
In addition to criminal background checks, consider conducting credit checks on appropriate positions. Consult with an employment law attorney or human resource specialist to make sure you conduct these properly.
Know your costs and the financial benchmarks for your industry so you can spot things that are out of alignment. For example, if your cost of goods is rising unexplainably, it may be a red-flag that goods are disappearing. Regularly review your financial statements and understand what they are telling you.
If you are the victim of embezzlement, consider prosecuting. Spend money on resources to help untangle the mess and collect what is owed. However, when you uncover embezzlement your primary job is to save the business.
Besides the effect employee embezzlement has on the owner and their finances, all too often it means lost jobs for those who did nothing wrong. To avoid this from happening to your company, consider relooking at your systems, and contact your CPA and other business advisors for help in evaluating your company’s exposure. If you have discovered embezzlement in your company, seek legal and accounting professional assistance as well as contacting the SBDC for ideas on how you can recover.
Business Tips is provided by Dave Erickson, Director and Certified Business Advisor at Angelo State University’s Small Business Development Center. For more information on the topic of this Business Tips article, contact him at David. Erickson@angelo.edu.