by Jeffrey A. Cole
If you have a minute, Google this: Employee Embezzlement. You may be amazed. However, if you are not amazed at the number of recent employee embezzlements, and you feel totally comfortable your organization will not be impacted by this rising type of crime, please continue reading this article. Keep in mind employee embezzlement tends to come from an employee having access to money, assets and sensitive identity records; in other words, the definition is a trusted employee.
Several questions come to mind when thinking about employee embezzlements: One obvious question is “why”? Why would an employee risk everything, including their freedom, to take from those who trust them? There are many answers to this question, but probably, the primary answer is the employee does not believe he/she has any chance of getting caught. Add to this, sudden economic motivation such as a spouse being laid off, the employee becomes over their head in debt. Thus, the idea of secretively “borrowing” money from the employer with the idea of paying it back, is seemingly ok.
It has been said there are only a few who will never steal from their employer, only a few who will definitely steal from their employer, and many who will steal from their employer when there is motivation, and an opportunity to do so. This is not a pleasant thought, but the employee embezzlement cases hitting the headlines usually have the elements of motivation and the opportunity to go for it. The current economic downturn and near 10% national unemployment can provide the motivation; and, it becomes the employer’s decision to allow a culture providing the opportunity for employee embezzlement. Here are some areas of opportunity for employee embezzlement:
- The thief usually has access to accounting systems-like an accountant or bookkeeper;
- One person does several jobs: receives the mail, deposits checks, and writes checks with little supervision;
- Petty cash is not closely monitored;
- Theft by employees tends to happen at organizations without security and inventory-tracking systems;
- Employees handling money or bookkeepers are allowed to avoid vacation time;
- The organization’s embezzlement policy focuses on the new employee, not the long term employee;
- The books are not audited by an independent accountant annually;
- Tasks are not divided among multiple employees to prevent illegal activity;
- There are not at least two employees to open and close the office.
If you watch the news, read the paper, or stay in tune with web based news sources, you will quickly see anything with value can, and will be a target for employees, even those employees with big salaries. If you are not convinced this could happen to your organization, here are some suggested ways to make sure “your hunch” is correct:
- See the counsel of a CPA to develop internal controls and test these controls regularly;
- Since theft of equipment and inventory tends to occur after hours, try to have more than one employee open and close the office;
- Embezzlements occur when there are no checks and balances; the heads of organizations should review the bank statements and review all the checks each month;
- A work culture of “do the right thing” is best supported when written consequences are established for employees stealing from the organization;
- Establish a written policy addressing acceptance of gifts from vendors, visitors, etc;
- With theft of personal employee and customer information ie. social security numbers, employees’ addresses, and payroll records on the rise, seek ways to make it harder for an identity thief to copy and remove files;
- Have a division of labor between accounting and IT functions; having two or more people perform these functions is one of the most reliable way to prevent embezzlement;
- If allowable, perform employee background and credit checks before hiring them;
- Listen to your CPA carefully; they can set up a system to prevent embezzlement in your organization
- Review www.embezzlement.com for consultation specific to policies and procedures addressing fraud and embezzlement;
- Provide all employees a copy of your organization’s employee theft policy, and have them sign a receipt they have received and reviewed it.
Even with a well monitored embezzlement policy, there is still potential for employees to embezzle, so it makes good business sense to purchase adequate limits of fidelity insurance, commonly called employee dishonesty insurance.