Trusted employee may still embezzle
February 13, 2012
Written by: David Erickson, ASU-SBDC Director
SAN ANGELO, Texas — We are sometimes asked to help businesses victimized by employee embezzlement of company funds and goods.
These are the toughest of all cases for us, as most times the embezzlement is severe and 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 your key employee can be trusted totally. In almost all cases the business owner was shocked 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. And sadly, we learned some of the embezzlers were blood relatives of the business owners.
After serving time in prison, someone who was caught embezzling a lot of money from his former employer is now speaking to business groups on how to avoid this situation. He was caught when the owner curiously checked into a vendor name he did not recognize on an invoice. The following are points taken from his talks to various groups.
Have a good computerized bookkeeping system set up by your 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 the checks and balances and other proper divisions of business functions are important in operating a business. Seek guidance to make sure proper checks and balances are in place.
Stay involved in your business and with your employees. Let them know that you care. Educate all employees on the negative impact of theft. Solicit their support of and involvement in the prevention and detection of theft.
In addition to criminal background checks, consider conducting credit checks on various positions. Contact an employment law attorney or human resource specialist to make sure you conduct these properly.
Know your costs and the benchmarks for your industry so you can spot things that are out of alignment. For example, if your cost of goods is rising inexplicably, 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 you untangle the mess and to help collect what is owed.
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 re-looking at your systems, and contact your CPA and other business advisers 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 adviser IV at Angelo State University’s Small Business Development Center. Contact him at David.Erickson@angelo.edu.