Protect Your Business from Employee Embezzlement

Employee Accused of Embezzling $6 Million From a Small Business
An independently owned and privately managed Houston business is in the news. This family business started with a handful of people over 50 years ago. Today they have over 300 employees.  One of these employees is charged with stealing $6 million from this business. Working as an accounting clerk, the accused was employed 16 years by this company. 

According to court records, the accused deposited checks meant for the employer into her own bank account and pocketed millions.  She reportedly used the money to live a “lavish lifestyle.”

Apart from the right and wrong of it: I have never figured out how employees embezzle company funds for extended periods of time. Embezzling $6 million boggles my mind! So putting myself in the shoes of a small-business employer, I decided to learn more about employee embezzlement. According to the Association of Certified Fraud Examiners, U.S. organizations lose an estimated seven percent of annual revenues to fraud.

Are there ways that you can protect your business from employee embezzlement? While there is no 100-percent foolproof system, the following steps are based on information provided by the Society for Human Resource Management (SHRM):

• Employee-background screening is an obvious first step.  During reference checks, ask previous employers if they would consider rehiring the candidate you are considering. Also, you can pose the following to candidates: “We do background checks on all finalists. Do you have any concerns about that?”  Oftentimes, a “shady” candidate will voluntarily withdraw their application upon hearing that question.
• Create a system of checks and balances. Have one employee perform the accounts-payable records and have another employee receive and reconcile the bank statements. Embezzlers often remove and destroy original checks returned by the bank.
• Have employees take a one-week vacation once a year.  During this time, ask another employee to perform the vacationing employee’s duties. The U.S. Chamber of Commerce also recommends this approach.  As stated on their Web site, "Because an employee who never takes a vacation could be concealing acts of dishonesty, all employees, but especially the ones who have access to your business records, should be required to take a vacation annually."
• Never sign a blank check.  Always make sure that the payee’s name and the amount are filled in before signing the check.
• Treat unusual transactions with suspicion.  Look behind behaviors or explanations that do not make sense. 
• Consider investing in an annual internal audit. Many embezzlers are discouraged and/or discovered by professional auditors.
• Consider purchasing employee honesty or fidelity insurance. These policies can provide company-saving protection.
• Set up a whistleblower hotline number.  Some companies implement this program as a way for employees to call and speak with an HR specialist or an ethics counselor.
• Require ethics training.  In addition to developing a company culture built on integrity, some companies require ethics training seminars. The bottom-line message is something like, “Even though you may want to do something, don’t risk it because it’s not acceptable here.”
• Consider investing in a risk assessment. Risk assessments can uncover potentially costly irregularities. They can also provide a means for establishing money-saving fiscal controls. 

Finally, if you suspect someone of embezzlement, you should immediately seek counsel from an attorney.  The attorney will help you take the proper steps to avoid wrongly accusing an employee.

A Houston small-business employee is in the news. Working as an accounting clerk, this employee is accused of stealing $6 million from her employer.