How to Catch a Thief In Your Midst (When You’re Not Norman Bates)


The age old crime of embezzlement is alive and well, and so are other white-collar crimes. Here’s how to protect yourself.

Yes, embezzlement and other white-collar crimes are alive and well in the Nigeria and small businesses need to protect themselves against them just as much today as years ago.

A lot horror stories have been heard about how firm have had to shut down their practices because they could no longer turn a profit.

No matter how loyal or honest your employee is but make sure you are aware of some of the signs of embezzlement, that you implement appropriate controls and monitor staff on a regular basis.

And it’s particularly important to keep vigilant, as white-collar crimes can go on for a long time before they are discovered, often taking months or years for investigators to gather the evidence they need to simply get rid of the perpetrator. Many embezzlers never wind up in jail, often because of the personal relationships they have with you or other key management, and the money they steal is rarely recovered.

Well-dressed and hiding in a cubicle, these kinds of thieves can destroy your company before you even spot them. Many companies will never recover from fraud — missing the warning signs may spell the end of your entrepreneurial career. Statistics confirm that only 20% to 40% of companies will recover any of the stolen money.

There are several steps you can take to identify and minimize the risk of embezzlement in your practice.
First, be aware and watch for the “red flags” with respect to changes in your employee’s behavior and the practice’s cash flow.
Next, develop internal control policies and procedures that will make it more difficult for the potential embezzler to obtain your money.

To identify check fraud, start by reviewing the list of vendors and make sure that you recognize each one listed. Investigate any company name that is not familiar to you. Have the bank statement sent to your house, then review both sides of cancelled checks. Compare the cancelled checks on the bank statement to those included with the bank statement before bringing them to the office to be reconciled with your accounting software transaction totals.

Make sure all outgoing checks have supporting documentation for you to review before signing them. Most important, remove your signature stamp from the premises so no one ever has access to it except you.

Sign up for online access to your bank account and review the balances on a regular basis. Be sure to check the payroll reports to make sure that they are accurate with respect to who is getting paid and how much they are being paid.
Eliminate potential for credit card fraud by limiting use of the company credit card to company business only. No employee, including the office manager, should be allowed to charge personal items on the company credit card.
All transactions on the credit card statement should be matched with supporting documentation.

Other way is for an employee to simply pocket cash co-payments and not record receipts and the person handling deposits to have access to a signature stamp or to forge your signature.
Sometimes payments are made to fictitious vendors. Personal use of the company credit card (with no back-up receipts) is another common method of embezzlement.

In small offices, there is often only one person responsible for handling and recording the over-the-counter cash transactions as well as the mail payments.
Without proper controls, it is very easy for charges and payments to be understated, cash drawer totals to be altered and transaction entries to be falsified or voided.
One way to avoid these situations is to separate cash management and billing responsibilities whenever practical. This may not always be possible, or foolproof, because two people could be acting in collusion.

Having pre-numbered super -bills and receipts, and comparing them with the appointment schedule and payment log, is another way to verify all transactions are being accounted for.

Review accounts receivable management and production reports on a regular basis, and ask questions.
Review your employee handbook and make sure that employees are required to take at least half of their vacation time in periods of three or more consecutive work days. This accomplishes several goals. First, it gives the employee a more productive break from the workplace. Second, it provides you the opportunity to become more involved with the daily financial operations and to identify any potential misappropriations.
Chances are that you will not find yourself caught in an in-office embezzlement scheme but watch out for one who rarely goes on break even volunteer to work when legitimately need to do so or dashed to office on weekends for flimsy reasons.

Separate the Financial Duties: This is a big issue for small business. If your receptionist opens the mail, writes checks to pay the bills, and mails the checks… you’ve got a problem.

Divide each side of the accounting duties (paying bills and issuing invoices) between at least two people.

The person, who enters the bills, should not write the checks. Likewise, the invoice entry and deposits should go to two different people.
In addition to reducing the opportunity for an individual to defraud you, this “check-and-balance” system will greatly reduce mistakes and oversights.

Look at the Bank Statements. The bank is your partner in avoiding and uncovering theft. Be sure you’re looking at the original statement straight from the bank. Have it sent to your home if necessary. This is the single best strategy to avoid theft … if anything on that statement looks funny, make it your job to track it down. Ditto with credit card bills.

Open a Depository Lock Box at your Bank. Did you know that your bank will accept checks directly from your customers and deposit them for you? By putting the bank’s address on your invoices, you can have customers send payments directly to the bank. Deposits are made more quickly and accurately. Nobody has to leave their desk to take checks to the bank. And there is much less opportunity for an employee to steal or misappropriate a customer’s payment.

Be the Last Person to Touch the Checks. When you sign the checks (and you should), don’t hand them back to someone for distribution. Mail them or, in the case of payroll checks, pass them out yourself. Payroll is one of the most often abused systems, so be sure you know exactly who is working and who has left. You may be surprised to find that a long-gone employee is continuing to be paid.

Set up “Positive Pay” Notification. Ask your bank about this. Positive Pay means you send the bank a list of the checks you write each day or week. The bank then compares every check to this list before cashing it.

With a Positive Pay arrangement, an embezzler trying to slip extra checks into the weekly run will be tripped up at the teller window long before you discover the odd entry in your ledger. Even easier is “Reverse Positive Pay”, which means the bank sends you a list of all checks presented for payment. Both of these are part of your bank’s “Treasury Management Services”.

Make it Everybody’s Job. Protecting the company from fraud should be everyone’s job. Involve multiple people in sensitive financial and inventory processes – have them double-check each other’s work in the name of preventing mistakes. Let sales people audit their customer’s accounts. Give warehouse men the full story about what is (or should be) on the shelf. Use the power of the crowd to verify that your company is not “leaking” money. Just having these checks in place will be enough to deter some cheaters.

When the Worst Happens
Discovering employee theft is just the beginning of the nightmare. Dealing with it can involve audits, police, and of course HR. Be careful not to accuse the wrong person, but when the jig is up, swift and certain action is the best course. Personally, people had lived to regret giving someone a “second chance”… in the future, first call should be to the police. Law enforcement is a sad move but ultimately the safest for you and your other employees.

Prevention, not Cure
Prevention is still the best remedy.
Start with a thorough audit of your own. Look at the policies and procedures you have in your accounting department. Find the concentrations of power and break them up.

Then turn to your bank and make use of as many of their cash management services as you can. There are some great services you might never think of, like electronic check handling, armored car services, and account reconciliation (which works great with Positive Pay).
Finally, put yourself in the most critical role of approvals or signatures… and stay vigilant.

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