July 15, 2019
Embezzlement is defined as theft or misappropriation of an employer’s funds or products in one’s care. It can occur in for-profit or non-profit organizations. Cases of embezzlement are often severe leaving the organization in deep trouble.
Embezzlement occurs because of three factors. First, there is an opportunity to embezzle because of lax procedures. Second, the person embezzling has a need and third, they rationalize that need. 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 or product. “They were like family to me,” or, “I thought I could trust them with my life,” are things commonly heard. Sometimes the embezzlers are relatives of the business owners. The following are some suggestions to help you avoid embezzlement.
Have a good bookkeeping system set up by an accounting professional. Employ a competent bookkeeper either inside or outside your business and ask your accounting professional for guidance on conducting periodic security audits. CPA’s call these “forensic agreed-upon procedures.”
Do not 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. If the cost of goods is rising unexplainably, it may indicate that goods are disappearing. If your cash position seems low, it may indicate misappropriation of funds. Regularly review your financial statements and understand what they are telling you.
If you are the victim of embezzlement, seek out legal and accounting assistance and spend money on these resources to help untangle the mess and save your business.
Besides the effect 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 organization, consider relooking at your systems, and contact your accounting professional 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.
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.