Preventing Employee Embezzlement is Simple

By Jim Bishop | Business Review

No organization is immune to embezzlement. In 2007, the most current year for which information is available, more than 3,900 embezzlement cases were reported in Michigan.

West Michigan saw 704 embezzlement cases ranging from businesses both large and small, to nonprofits and churches, and even community organizations.

The most common types of embezzlement include:

• Failing to record cash transactions
• Falsifying expense or reimbursements reports
• Conducting personal business using company accounts
• Creating bogus employees, suppliers and other payables.

Small businesses and volunteer organizations are especially at risk, as owners and officers are often busy with other matters and have a “hands-off” attitude when it comes to finances. It’s not unusual that one person manages all of the organization’s financial tasks, making embezzlement easy.

We recommend organizations protect themselves with these simple steps:

• Become the mailman.

Often the same person who opens the mail also records receivables and makes the deposit. Small business owners should oversee incoming mail and immediately endorse any checks that have arrived.

• Dual controls over financial processes.

By splitting responsibilities, another employee will be double-checking the bookkeeping and preventing would-be embezzlers from writing checks to themselves or fictional vendors. You may also want to hire an accounting firm to reconcile bank statements.

Many embezzlers steal by writing company checks to themselves, then destroying the canceled checks.

• Limit access to lines of credit.

Consider who is authorized to request advances from your organization’s line of credit. If it’s the same person who writes checks, you’ve enabled them to hide their theft by replenishing your depleted bank account.

• Go electronic.

Still writing checks by hand? Computerized bookkeeping programs often interface directly with your bank, making it easier to spot suspicious activity. Ask your bank if they offer any electronic programs that minimize risk of unauthorized checks clearing your account by expediting identification of fraudulent items presented for payment.

• Don’t believe you are immune.

It’s always a shock when a trusted employee or volunteer embezzles. Unfortunately, in these uncertain economic times, temptation can be hard to resist. Regular reviews of the books will keep the inclination suppressed.

Over many years the bank’s team has seen firsthand the devastating effects employee embezzlement has had on West Michigan employers.

There are many tactics to curtail embezzlement, but by instituting these five simple checks and balances, businesses and nonprofit organizations can start to prevent or contain fraud, theft or embezzlement.

Jim Bishop is senior vice president and market manager for the Holland office of The Bank of Holland.

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