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How Do I Prevent Employee Theft?

It’s happened again….locally….and it makes my blood boil!  Another full-time, long term, on staff, trusted bookkeeper has been arrested/prosecuted for company embezzlement.  I wish I could train company owners and management on a full time basis on how to prevent employee theft.  The American dream for so many is to become a business owner, to have financial freedom, time freedom, and the opportunity to provide employment to others.  The bottom line is that it’s a proven fact that there are people who will steal if they feel that they  can get away with it.  They take advantage of the company, the owner, and the other employees.  They lack integrity and character. These types of people cannot be stopped – but they can be caught!

What I want business owners and managers to realize is that there are simple steps that can be taken to prevent or catch employee theft.  It takes being involved in your company’s finances and I’m sorry to say, offering a little less trust to the people you have hired to manage your businesses bookkeeping and accounting.  This list of to-do’s may seem overwhelming.  But I would ask yourself as a business owner, “Is it worth not losing thousands of dollars and saving tons of frustration?”  If your answer is Yes – then read on!

  1. Signature Authority.  Never, ever, ever have a stamp created with your signature on it.  When you do this, you are giving rights to anyone who uses it to make a payment to anyone for anything they want.  You have just given up your right to press charges if you find theft.  You must make it a priority to sign every check that goes out your door.  Even Oprah still signs every check that is written for her businesses.
  2. Checks and Balances.  Do not give authority to any one person to be in charge of your entire bookkeeping and financial accounting processes.  You must create checks and balances.  For example, the person who enters your Accounts Payable should not be the same person who prints, signs, and sends check out the door.  This easy step could prevent so much theft.
  3. Bank Accounts:  Do NOT allow anyone, including hired bookkeepers, administrators or accounts payable to have signature ability on ANY of your business accounts.  If someone in this capacity is asking for this authority, I would beware!
  4. Recordkeeping.  Do not allow your bookkeeper, administrators, etc. to hold the key to locked financial documents.  This is a huge red flag!  People who want to hide things will try just about anything!
  5. Vacations.  Be aware of your bookkeepers or administrators refusal to take vacations or time off.  If they are stealing, they will NOT want to be away from the office for too long because they are too afraid that someone will start looking around.  My advice, START LOOKING!!!
  6. Company Credit Cards.  If you issue company credit cards to employees, you MUST require that receipts be turned in for every transaction.  And I’m sorry, but you will need to take the time to review the transactions against the credit card statements.  Many employee’s involved in theft will use their company credit card to pay personal expenses that can be easily hidden from the employer.  Ie:  Pays their personal Verizon Wireless bill via their company credit card because their employer ALSO uses Verizon.  This can happen with insurance payments, grocery or office supply stores, etc.
  7. Bank Reconciliations.  Your accounting software is only as good as the data that is being entered!  If you are not cross-checking the data entered against the bank statements, then change your ways!  Do not rely on your accounting software reports alone.  Always ask to see a bank reconciliation report and the actual bank statement.
  8. Point of Sale Systems.  A daily sales report should be printed from your POS system and cross checked against your Accounting software to create a cross check of income being received and deposited, especially if your company receives cash payments.
  9. Accounting Software.  Most accounting software can create a report that tracks deletions and changes to data entered. This should be reviewed regularly to see what is being deleted or changed and by whom.
  10.  Petty Cash.  If your company receives cash payments and is being managed by someone through a petty cash register, it needs to be reviewed regularly!  This is the easiest place to steal.  A ledger should be created and kept and reviewed by management or the owner on a regular basis.
  11. Payroll.  Do not let your bookkeeper have control over payroll!  Always cross check timesheets against a payroll report or pay stub and check to be sure the same amount is clearing the bank account.
  12. Invoicing.  Be mindful of who is being hired to perform services for the company.  Is a relative or close friend of the bookkeeper being hired?  The chances are likely that a thief will hire someone close and be in cahoots on receiving payments for services.  Did the service actually occur?  Was the rate reasonable?
  13. Email Access.  If your employees have access to your email than they also have access to pretend they are you and give authorization for the distribution of funds (among other things).  My suggestion would be to keep your email password protected or keep a close eye on your Sent mail.

 Here are some additional tips:  If these things seem to happen with your bookkeeper/administrator, be concerned!!

Is living a lifestyle above what they seem to be earning, takes records home to work on, refuses to take vacations or time off, gets nervous when you are about to meet with your CPA, has access to your credit and debit cards, receives mail order packages at work, does not know how to explain tax delinquency notices, has two different QuickBooks® files for the company, has payroll a mess, suggests that he/she doesn’t need any help with the bookkeeping/accounting, doesn’t like to produce financial reports, and many more red flags!

My heart cry is that your business is a success and employee theft does not happen to you!  I hope that you find one of the special people that become long-term employees who appreciate your businesses success and does not take advantage of you!  Please keep your eyes and ears open and get involved in your company’s financial records if you have an in-house bookkeeper. If you have questions on how your business can prevent employee theft, give me a call.