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Employee Fraud: Protecting Your Bottom Line

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Can you recognize an embezzler just by looking at someone? If you could, the networks might be willing to go into development to chronicle your success. An embezzler doesn't skim off the top (what is that anyway?) They take from where it hurts, the bottom line -- your profit. Most people who steal from you look like the boy or girl next door; that's part of the reason they are so successful. I'm sure they don't have an association of embezzlers but if they did they could boast about how easy it is and how ripe we, the trusting employers, are for it, unless we have certain safeguards in place. It's so simple to protect yourself that if you ever do suffer employee fraud you'd say, "I knew that," and you did.

These types of losses are rarely recovered even if the perpetrator is caught. I hear horror stories almost every day. In the three years I have worked in construction office management, I personally have known four contractors who have suffered losses ranging from $11,000 to over $40,000, all from "trusted employees". Sometimes these losses caused the company to go under.

Some years ago, I heard about an irrigation supply wholesaler who almost went out of business. The company was embezzled out of $500,000. Recently, I heard of another company who lost over $250,000 to employee fraud. In some cases, the work relationship had developed into bonds that felt like family members. It's the worst kind of betrayal on many levels.

Preventing losses starts with you. It's your business. Yes, you don't have any time and you are already wearing so many hats you wonder if you have another head, but when the money is gone you will have plenty of time to think of all the things you could have or should have done.

Each year businesses lose approximately $40 billion to employee theft, according to the U.S. Chamber of Commerce. These are a result of improper controls and poor management attitude. Business trends are creating new opportunity for crime.

With competition so intense and profit so small there is a greater opportunity for losses through fraud and embezzlement. Less emphasis is being placed on preventative measures and appropriate operational controls since more and more business functions reside on computers and less on paper systems and control programs.

With the rise of credit and other debt, financial burdens on employees are increasing faster that real income, creating more incentive and more desperation. It's easier to rationalize this act if your back is against the wall and the wolves are at the door. It doesn't help if your boss just bought a new Porsche on his way back from skiing in the Alps and hasn't given his staff a raise because "things are tight."

Many small companies find employee theft prevalent in their office. High employee turnover rates increase losses due to inadequate training and lack of experience. How many bookkeepers have you had recently?

Preventative Measures
Maintain separation of responsibility. The person who writes the checks is not the person who should do the bank reconciliation. Too much opportunity, not enough control. Without external audit, fraud and theft can go undetected for years (especially the good years when there is plenty of work). Reconcile your statements within two to three day of receipt.
Secure your supply of blank checks. Never use a rubber stamp for signature. Your employee may be able to forge your John Hancock, but don't give them the tool to rob you.
Review banks' signature cards, transfer agreements and access codes. When the bank calls for signature verification, make sure you take the call, not the bookkeeper. Review all check orders and quantities, especially the numbering. If there are a lot of missing numbers you could be suffering losses.
Prudent hiring practices. Verify previous employment and ask for either verbal or written references.
If you are computerized, have a bookkeeping program that does not allow you to delete anything without creating a journal entry. An audit trail will protect you. Change the password when you change the bookkeeper and change the locks on the door and cabinet where you keep blank checks.
Don't ever assign check-signing privileges to anyone or sign a blank check, and don't sign checks without reviewing the corresponding invoices.
Make sure your bookkeeper takes at least a one week vacation, make it mandatory. Have someone else fill in. That is where you will usually find some problems.
Periodically and unexpectedly open the mail.
Don't sign checks to petty cash without reviewing the account.
Review and keep all voided checks in a separate file.
Do not have an ATM card for your business.

Are you doing all these things already? Good - then you have nothing to worry about, except getting more projects and keeping the customers happy.


 
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