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Wednesday, July 12, 2017

Embezzlement and Theft Easier When Business is Good

I’ve been reading our local newspaper and something caught my eye. Just about every week there is another office manager arrested for embezzlement. With business good this year it seems that it is easier than ever to dip into the cash box.

Last week’s article was about a charity’s office manager stealing over $27,000 from the petty cash fund over a two year period. The week before it was the bookkeeper for an excavation company that embezzled $18,000 in just the past 6 months. If that is happening in my little corner of the planet, what about yours?


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When modular home builders and even factories get very busy like they are this year, it can create a very tempting situation for even your once most valued employee.

A few years back on the Eastern Shore of MD a bookkeeper with the company 15 years was dipping into a builder’s escrow account and took over $350,000. Builder forced to close, homes left unfinished.

Companies that insure small businesses against fraud have become alarmed by the losses this year and encourage owners to become even more vigilant.

Employees who steal typically have worked at a business for several years before starting to steal and continue for an average of three years before they get caught.

That’s a lot of time to generate losses for the business.


Here are some suggestions you can do now:

Employee Stealing

1. Know the key indicators of potential theft:
  • Sudden, apparent devotion to work and working late.
  • Lifestyles well above salary levels.
  • Objections to changes in procedures involving money.
  • Drugs and alcohol abuse.
  • Moonlighting with materials available from the jobsite or warehouse.
  • Evidence of compulsive gambling, persistent borrowing or bad check writing.
  • Do a complete background check on all new hires that will have access to your money and large assets.

2. Supervise employees closely. Not surprisingly, studies show that when supervision is lax, theft and fraud rates go up. This doesn’t mean looking over their shoulder every minute. But it does mean checking what they do. It’s also wise to have more than one person looking out for your money.

3. Use purchase orders. The payment, receipt and preparation of purchase orders should be separate functions and handled by different individuals. You need to review PO’s at least weekly.

4. Use informal audits. Make unannounced internal audits and have a yearly audit performed by an outside firm.

5. Track your business checks. Always use pre-numbered checks, with amounts and payees typed or written in permanent ink. Producing all checks from financial software such as QuickBooks is highly recommended. Lock blank checks and a signature machine, if you have one, in a secure place.


6. Secure your escrow accounts by either you being the sole authorized person with access or require two signatures, one of them being yours.

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7. Manage inventory and use security systems. All that leftover material from the job sites belong to you. Workers are usually given unrestricted access to them throughout the day. Consider installing cameras and a manual material checkout/check-in materials ledger. Workers can do a lot of moonlighting with those materials and your tools.  Physical inventories should be done annually by individuals who are not responsible for inventory records.

8. Foreman and supervisors are not immune to theft. Materials left at job sites are ripe for the taking. Workers told to do some work around the Foreman’s house under threat of being fired. Using company credit cards for personal car gas. The list goes on and on.

If you suspect a problem, be extremely careful about making accusations and conducting investigations – a false accusation can result in a lawsuit against you.

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