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Investigating Employee Embezzlement: Effective Measures to Protect Your Business

by | Jan 24, 2024

Investigating Employee Embezzlement

Recently, our team completed a significant financial fraud investigation for a small business that fell victim to the three-headed monster of employee fraud, waste, and abuse. Investigating this employee embezzlement case  reminded us once again that—though the names and faces may change—the warning signs of employee fraud are remarkably consistent across organizations. 

Given the right circumstances, even seemingly loyal and honest employees can be driven to embezzle, particularly if those individuals are facing financial problems. The chances they will succumb to dishonest acts also rises in proportion to the opportunities they have to commit fraud. Constant temptation can lead an employee to step over the line.

How, then, can a business safeguard itself from embezzlement? The solution begins with you. Business owners and leaders need to recognize their blind spots when it comes to potential employee fraud and to understand the measures they can take to help prevent their organizations from falling victim to an employee embezzlement scheme.  

Trust, But Verify

In our experience investigating employee embezzlement cases, we have found employers often have a false sense of security, believing they are impervious to fraud risks. Common thoughts include:

  • “My bookkeeper is such a hard worker – the first one to arrive and last to leave.”
  • “They’ve been with me for years.”
  • “I pay them so well…”
  • “Our accountant provides a clean bill of health annually.”

Recognizing that employee theft might indeed affect your business is not about descending into paranoia. It’s about fiscal prudence. According to the Association of Certified Fraud Examiners (ACFE), the typical organization loses approximately 5% of annual revenue to fraud. Business leaders who fail to ask the simple question “who in the company might have the opportunity to commit wrongdoing and conceal it?” may be letting a significant chunk of revenue needlessly slip away.

What can an organization do to prevent theft? The first step is never to allow employees to check their own work. Consider a transaction as a circle: No single person should complete the circle independently. Segregating duties, especially for bookkeeping tasks, is essential.

Reflect on the following questions:

  • Who has access to incoming funds? Refrain from granting them the authority to post or modify customer transactions.
  • Who can access outgoing funds? Avoid leaving them in a position to create new vendors or employees, sign checks, or execute bank transfers.
  • Who orders services or parts? Who opens mail? Who takes money to the bank? Who writes and mails the checks? Who reconciles bank statements?

Stay Involved in the Process

While segregating duties in a small business can be challenging, business owners can find ways to incorporate themselves into financial processes.

Cash receipts. Ideally, separate employees should be responsible for collecting money and billing customers. For a single employee, restrict their administrative rights to post credits, void customer transactions, or write-offs, and verify the electronic audit trail available in most accounting programs.

Cash disbursements. If your bookkeeper handles both disbursing money and reconciling bank statements, ensure bank statements and canceled checks are first sent to you, preferably to your home, and examined before handing them to your bookkeeper.

Debit or credit card purchases. While your bookkeeper likely pays these bills, do not grant authority to increase limits or request additional cards. Set daily and monthly limits on cards and monitor them routinely. Make sure receipts are submitted and reviewed before paying the bill.

Investigating Employee EmbezzlementAct Now to Protect Your Business

Don’t let your business fall prey to embezzlement. Educate yourself, be vigilant, and verify employee actions. 

Suspect you have a problem? Our team specializes in investigating employee embezzlement and financial fraud investigations. We have deep experience assessing businesses and uncovering of fraud, waste, and abuse.  Don’t wait until it’s too late. Contact us today to protect your business from potential fraud.

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