MLR

20 steps to stopping embezzlement before it happens

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Three out of four employees who embezzle from their employers work in the finance, bookkeeping or accounting department.

concerned woman reviewing ledger

Embezzlement can literally cost an organization millions, so it makes sense to put extra controls on the employees who are handling the money – and may have more temptation.

More care and concern should be taken in hiring employees who will work in a financial capacity, and more scrutiny and controls should be placed on those employees with fiduciary responsibilities, according to Marquet International, Ltd., which has conducted in-depth studies on thousands of major embezzlement cases.

Businesses – as well as nonprofit organizations, which are often victims – should consider adopting the following 20 strategies to help prevent embezzlement, as recommended by Marquet International, an investigative, litigation support firm.

1. Do not allow a single individual access to all aspects of company finances. Make sure there is a division of duties in the finance department.

2. Regularly rotate responsibilities for bookkeeping personnel.

3. Require bookkeeping personnel to take time off and vacations. Embezzlers often take few or no vacations to perpetrate their schemes.

4. Do not allow bookkeepers to take work home.

5. Require two signatories on outgoing checks above a certain nominal amount. The signatories should be different individuals from the check preparer. Forged or unauthorized checks are the way most embezzlement happens.

6. Examine cancelled checks regularly. One common method of embezzlement involves the forgery of checks. Another is to have them payable to the embezzler or their personal vendors.

7. Maintain unused checks in a lockbox. Be sure all checks, purchase orders and invoices are numbered consecutively and reconcile any of those missing.

8. Conduct regular as well as random audits. Owners should take a hands-on management approach by physically spending time with the bookkeeping department.

9. Audit petty cash regularly.

10. Audit company credit card charges regularly.

11. Audit expense reports regularly.

12. Be sure each payment is backed up with appropriate documentation. That include electronic or otherwise.

13. Back up financial records daily.

14. Make and reconcile daily deposits. Use a “for deposit only”stamp for check deposits. The person recording cash receipts should be different from the one making the actual deposits.

15. Be sure that a different person makes bank reconciliations than those that handle cash receipts and cash disbursements.

16. Know who your vendors are. Embezzlers often create phony vendors and submit fraudulent invoices for payment.

17. Examine payroll records regularly. Some embezzlers issue themselves extra paychecks and bonuses through the payroll system.

18. Investigate customer and vendor complaints promptly. If vendors are not being paid as expected, it may be a sign that the payment checks are being diverted.

19. Conduct pre-employment background checks for all personnel with fiduciary duties. Also conduct employee background checks on current employees on a periodic basis, particularly those in financial positions.

20. Listen to the employee grapevine. The HR department should pay close attention to any employee scuttlebutt, in particular about an employee living beyond his or her means or having a gambling problem. One-third of embezzlements are committed because of gambling problems.