I have yet to meet a small business owner (which I define here as one with less than 25-employees), who has not told me how busy they are, since they all wear several hats. When sales are down, cash is low, and lenders and vendors are knocking at the door demanding payments and information, the pressures cause many of us to place undue reliance on someone managing the numbers. Yet this is when you are most vulnerable – when you are “desperate,” when you are stressed, when you depend on someone else to protect your financial assets.
So, here are 8 tips for you to consider no matter how pressed for time you are. Taking care and putting proper procedures in place can help mitigate, if not eliminate, you becoming a victim of employee embezzlement.
Always, always, look at your bank statements yourself - look for anomalies or unusual items and when found, ask for an explanation. If you are paperless and work off online statements, pull a statement once a month, or better yet, look at the statement register every few days. After doing this for a while, your controller/bookkeeper will know you are watching and if they have dishonesty in mind, they will think twice. Maximum invested time to do this: 10-20 minutes.
Limit the authority of the bookkeeper/controller with what they can access, execute and authorize with the company bank accounts. They should be able to access bank statements, but should not have signing authority on checks. They should not have authority to wire funds, nor sign on your behalf.
Try to organize your bill paying to a schedule, once a week, every 30 days, or whenever practical. When checks are presented for payment, insist that support documents be attached, such as invoices, proof of purchase, written confirmations, etc. And look at the documents – check the what, the why and the amount. Depending on how many bills you pay in a cycle, maximum invested time to do this: 15-30 minutes.
When a check must be written off schedule, require back up and always ask why.
When you go on vacation, do not leave signed checks behind. Instead, contact some of your more important vendors and discuss the fact that there will be no payments while you are away. Plan your vacation in between billing cycles so the need for checks is minimal. If an emergency comes up, you can always call your bank and initiate a wire transfer – but plan ahead and prearrange with the bank to have the ability to authorize wire transfers with a phone call.
Today’s modern cash management tools include the ability to pay vendors, utilities, contractors, etc. online. I suggest that this method be limited to those vendors that require it – giving a third party authorization to debit your company bank account to pay bills in the interest of saving time could in the long run cost you far more than the additional labor cost. If you insist on paying bills online, and don’t want to do it yourself, bank statements usually list checks paid separately from online payments, so again, look at the charges against the account for anomalies or unusual items.
Thoroughly screen your bookkeeper or controller. Pay for a deep background check instead of a cursory one – the difference in price is well worth avoiding the pain later. My client’s controller had embezzled before, was convicted, and it never showed up on the cut-rate background check.
If you issue payroll checks, you should sign them – and make sure amounts and hours are reasonable.
Common sense? Yes, yet the incident I referred to above, happened over a three year period. Hopefully, most of you have procedures in place so that this doesn’t happen to you.
And please remember: an honest person will not resent you looking over their shoulder, so please do.
Here is more information on embezzlement warning signs that you can monitor.