Guarding Against Embezzlement Fraud: Developing An Action Plan

Ralph Summerford

By Ralph Summerford

We’d like to introduce our three-part educational series on Guarding Against Embezzlement Fraud. In this first installment, we will discuss preventive measures you can take. The second part will explain how embezzlement cases can bring about unexpected problems, and the third and final part of our series will discuss defensive measures.

It’s not something business professionals should dwell on, but financial embezzlement is a substantial threat in today’s world and has been the leading form of asset misappropriation schemes over the past several decades.

Knowing that the crime exists, what can one do to prevent it? The best defense against embezzlement remains an “informed prevention” approach. The following is a limited list of preventative measures to reduce the threat of fraud and embezzlement within an organization:

  1. Maintain strong employee recruiting controls to assure that candidates with questionable backgrounds are eliminated from the employment process.
  2. To guard against the addition of bogus employees to the payroll system, separate the hiring function from other duties associated with payroll.
  3. Design and implement control procedures governing additions and modifications to vendor files.
  4. Ensure that payments are mailed directly to vendors rather than routed through the person or functional area that requested the payment.
  5. Reconcile bank accounts expeditiously; ensuring that there is an appropriate separation of duties among employees who issue checks, handle cash deposits, and reconcile bank accounts.
  6. Maintain adequate separation of duties among the collection of cash or receivables, preparation of bank deposits, and reconciliation of bank statements.
  7. Require supervisory approval for all write-offs of accounts receivable.  Restrict authority so that employees who post payments cannot adjust accounts receivable items.
  8. Utilize hidden flags or exception reports that are available in many point-of-sale and accounting software packages.
  9. Regularly rotate staff within critical financial areas such as cash management, accounts receivable, accounts payable, purchasing, and vendor database management.
  10. Small companies often find it challenging to implement effective separate duties, but it possible with proper management and owner oversight.  Never leave an employee in a position to check and/or authorize his or her own work.
  11. Remember that the perception of detection is good start to a great defense against embezzlement.

It may sound simple, but one should always prepare for the threat of embezzlement. Be sure to check back next week for the second part of this series. Guarding Against Embezzlement Fraud: What Can Go Wrong?

For more information beyond this educational series, find us on Facebook and Twitter and visit our website.



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  2. [...] that you’ve gained valuable information from the first and second parts of our educational series, Guarding Against Embezzlement Fraud, we offer insight [...]

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