August 01, 2019 | Posted in:

Embezzlement: Don’t Fall Victim to Employee Theft

Employee theft happens frequently enough for it to be a concern of every business. It makes no difference whether your business is a one-employee medical office or a forty-employee retail outlet. Absentee business owners should be even more alert to the problem of employee theft.

Busy managers find it easy to turn the recordkeeping over to a qualified employee. Don’t do so without proper controls and constant review.

Some examples of employee theft

Consider these examples of the methods by which employees have been known to steal from their employers:

  • Opening a checking account in a nearby community under the same name as the employer company.
  • Overpaying the payroll taxes or large suppliers and asking for refunds which are then deposited in the employee’s new company account.
  • Convincing the employer that the independent accountant is an expensive luxury which the company can do without now that the employee is available to do financial statements.
  • Soliciting the help of a supplier’s employee, then overpaying the supplier and sharing the overpayment.
  • Opening a checking account with the same name as the employer’s major suppliers and then paying invoices twice. The first payment is sent to the supplier, and the second is deposited in the employee’s “extra supplier account.”

Some small businesses have paid a high price to learn about employee theft. Don’t be lulled into thinking it could never happen in your business.

Learn to spot employee theft

Whether your business deals in products or services and whether you have one employee or many, you should be aware of the signs of employee fraud or embezzlement.

Fraud most often develops over a period of time and will sometimes involve employees with outstanding track records. What would cause a long-term, trusted employee to go bad? Watch for employees who are under new pressures such as:

  • Unusually large medical bills
  • Living beyond their financial means
  • Excessive use of alcohol or drugs
  • Large investment losses
  • Excessive gambling

Also, watch for a growing disregard for the company in favor of personal gain.

Identify problem areas

What circumstances in your company make fraud or embezzlement easy? Small companies find it especially hard to segregate duties of employees. That can increase the chance of losses to the company. Consider these problem areas:

  • Inadequate accounting records.
  • Too many related transactions handled by the same person.
  • Too close a relationship between your staff and specific staff members of your suppliers.
  • An employee who takes very brief vacations or no vacations at all.

It is not necessary that you become paranoid about employee theft. It is wise, however, to have a system set up that makes fraud less likely.

Take steps to prevent employee theft

Many businesses have too few employees to provide for proper segregation of the duties. If one employee is allowed to handle too many functions, such as paying bills, collecting receivables, preparing payroll reports, handling petty cash, and making bank deposits, the company is wide open to fraud.

If you’re a small business owner, you should stay close enough to the business transactions to be able to spot unusual problems with the receivables, payables, refunds, etc. Ask questions about accounts receivable balances from time to time. Insist on being the first one to open the bank statement. This gives you the opportunity to spot unusual checks, odd vendor names, etc.

Open all incoming mail from customers and vendors. This allows you to see customer complaints and adjustments to account balances. It also allows you to view anything out of the ordinary.

Finally, be curious. Conducting random spot checks in different areas of the business will let employees know you are involved. If done correctly, employees will see this activity as caring and valuing what they do and not that you do not trust them.


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