When most people think of the term embezzlement, what often comes to mind are unscrupulous money manager's at large corporations who take millions of dollars through scams and fraud. However, embezzlement can and does happen even at the smallest of firms. The employee that manages payroll and cuts themselves an extra paycheck, or the employee that manages accounts payable and makes a payment to a "mystery firm", even the employee who handles petty cash and uses a few bucks without authorization to buy their lunch are all examples of embezzlement. Embezzlement can very quickly create cash flow and legal problems for a small business. You'll need good financial controls to ensure that one unscrupulous employee doesn't wreck your enterprise.
The following safe guards are useful to protect your small business against potential embezzlement:
1) Segregate financial duties.
Small businesses are particularly vulnerable to embezzlement because there's often just one person balancing the books, counting the cash, making the deposits, and sending out the invoices. Divide these responsibilities between several employees so no one person can steal without someone else noticing that there's a problem.
2) Review payroll checks for names you don't know, and for employees that are no longer with your company.
Unscrupulous payroll department employees sometimes sneak "ghost" employees into the system and pocket their salaries. Consider personally distributing payroll checks to each employee by hand.
Under this arrangement, you electronically send your bank a daily list of the checks you've written. If someone alters one of your checks or cuts a check without your knowledge, your bank won't honor it.
4) Review statements often
Whether it is your company's banking statements or company credit card statement, review them regularly for errors or irregularities. Even if your employees have primary responsibilities to manage cash flow, payables, and receivables - rather than solely relying on financial statements from your company's accounting software - check the statements from the financial institutions you do business with.
5) Review your business credit
As important as it is for consumers to keep up with their personal credit history, it is as equally important that business owners are up to date with the information contained within their business credit report. You should review the information contained in your company business credit history regularly, checking for unfamiliar or unknown accounts set up without your knowledge.
As a business owner the buck usually stops with you, take steps to be sure the financial health of your company is protected by staying on top of your finances.
