Avoiding Embezzlement

The word embezzlement strikes fear into every business owner. The stories are always horrible, and we usually hear from the business owner that it was done by a highly trusted employee who was “like family”. We’ve seen embezzlement happen to businesses owners who are very hands off with the finances and ones where the owner watches over everything closely. The point is it can happen to anyone.

We asked Hilary Dolbee of VisionPath CFO to share some tips and advice on preventing embezzlement and here is what she had to say:

Recently, I was chatting with a business owner, let’s call him Sam, who was telling me about how they had noticed charges on their credit card that they didn’t recognize. Sam then spoke to the employee, let’s call them Bob, who had made the charges and explained it had been done by mistake. Bob apologized and they moved on. However, not long after that it happened again. Turns out, there were multiple fraudulent charges and Bob was let go from the company due to these incidents. And do you know what? Bob and Sam have worked together for years. It just goes to show you never know what someone will do, and that embezzlement can happen, even between friends. Regardless of who is managing your books, you as the business owner should still review your bank and credit card statements. Look over your financial records consistently. At least a monthly review, but it would be even better if you could look at them weekly to spot any irregularities early on and prevent fraudulent activity.

Embezzlement can be a serious issue for small businesses, but there are ways to prevent it:

1. Make clear policies and guidelines: Create a set of rules for handling money and finances, and make sure everyone knows them.
2. Divide the duties: Split up the tasks of handling money, recording transactions, and reconciling accounts among different employees to avoid any one person having too much control.
3. Review financial records regularly: Check financial records frequently to spot any discrepancies or unusual activity.
4. Use internal controls: Put in place measures like passwords, access controls, and transaction limits to prevent unauthorized access or activity.
5. Screen employees: Conduct thorough background checks on all employees who will have access to financial information or funds.
6. Encourage honesty: Create a culture of openness and encourage employees to report any suspicious activity or concerns. Remember, prevention is better than cure. By taking proactive steps to prevent embezzlement, you can protect your small business from potential financial losses and legal issues.
7. Audit financials: Have an outside party review your financials regularly to help spot any suspicious activity.

Sometimes embezzlement is ‘easy’ to spot like Hilary’s story above. Sometimes it takes full on forensic accounting to find it (we’ve seen edited check entries and fake shell companies created to match vendors for example). If your Spidey senses are tingling, investigate it! Here are a few signs that something fishy might be happening:

1. Missing financial documents: This can be a big sign that someone is hiding something.
2. Payment issues: If vendors say they didn’t get paid or customers are claiming they already paid, it’s time to investigate.
3. Shrinking profits: If you feel like you should be making more money than you are, dive in deeper to understand what is happening.
4. Employee changes: Any of these changes in an employee’s behavior could be a red flag.
   • Living beyond their means (you know their salary)
   • Not taking time off
   • Staying late to work alone
   • Resistance to financial reviews

You’d be shocked to discover just how fast and how much money someone can siphon out of a company before it’s found. If you suspect embezzlement is happening to you and need help investigating, reach out to neutral 3^rd party like Hilary. Only 19% of embezzlement cases result in a recovery of funds so prevention and stopping it fast are key.

And remember, even if you have been the victim of embezzlement, you can still sell your business. Reach out to us at 573-335-1885 for a confidential conversation about your situation.