PROTECT YOURSELF FROM EMPLOYEE THEFT
“It won’t happen to me, my employees love me!” OK, that may be true but still the US Chamber of Commerce estimates that 75% of all employees steal at least once; and half of these steal repeatedly. The US Department of Commerce estimates that employee dishonesty costs American businesses in excess of $50 billion each year. Despite the fact that your employees may love you, it is only smart to take steps to protect yourself from the few that would take advantage of your good humor and rip you off.
Why do employees steal from you, the "Good Employer"? Here are some reasons why –
1. The employee believes he can get away with it.
2. The employee feels frustrated or dissatisfied with some aspect of the job.
3. The employee feels abused by the employer and wants to get even.
4. The employee thinks “Everybody else seals, so why not me?”
5. The organization’s internal controls are so lax that everyone is tempted to steal.
6. Employees tend to imitate their bosses; if you steal or cheat, then they are likely to do it also.
This may not be an encouraging statement but the truth is that most employee thieves are caught by accident rather than by audit or design. The fear of being caught is really not a deterrent to an employee who would steal from you. But you can take steps to limit your exposure to employee theft and maybe increase the likely hood that employee theft will be discovered, by accident or by design, through instituting some sound Internal Controls in your business. Here are some quick ideas on sound internal control policies –
Separate bookkeeping functions. A basic internal control procedure which you may be able to install is to have more than one person handle a business transaction. For instance the person who receives a shipment should not be the person who records the vendor invoice for payment. Keeping the physical custody of inventory segregated from the record keeping functions means that it would take at least two employees to steal something.
Who signs checks? You sign checks! This is function is the key to the vault and it should be guarded closely by a business owner. If yours is a business large enough that you cannot always be available to sign checks then limiting who signs checks is what needs to be done and you will need to be involved in the cash management functions in another manner. Maybe you will receive the bank statements first and review all checks for signatures and unusual payments. Of course there are other alternatives that could be tried and each will depend on your business. The point is that no disbursement should pass through the business without your oversight.
Who does the payroll for your business and how about hiring? Do you need war stories? Once we saw a scheme that had the trusted (!!?) bookkeeper added phony employees to the company’s employees and cut them checks each pay period. She then cashed the checks herself. She also didn’t pay the company’s payroll taxes and then hid the IRS notices of unpaid taxes. This went on for more than six months before the business owner became aware of the situation. But the trusted bookkeeper had already had a “family emergency” and left suddenly just before the calls started to come in.
CLUES TO POTENTIAL PROBLEMS – With Your Employees
- Abrupt change in lifestyle (without winning the lottery!)
- Close social relationships with suppliers
- Refusing to take a vacation
- Frequent borrowing from other employees
- Excessive use of alcohol or drugs
CLUES TO POTENTIAL PROBLEMS – With Your Records
1. Missing documents or gaps in transaction numbers
2. An unusual increase in customer refunds
3. Differences between daily cash receipts and bank deposits
4. Sudden increase in slow payments from customers
5. Backlog in recording transactions
If any of the above sounds familiar, then you need to investigate and clean up the situation. We may be able to help you. Please contact us so that we can discuss your situation. All information, of course, is kept confidential.