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Don't Get Ripped-Off By Your Employees

We have seen a lot of employee fraud over the years, and it is very painful for us. The sad thing is, most employee theft is preventable.

In almost every case, it was a long-term employee that was the "most trusted" in the company. It is usually someone in this position of trust, who has unlimited access, that commits this kind of crime. Typically, they are also very engaging and smart.

The crime is usually achieved by the bookkeeper or the owner's secretary. In other words, it's the person who knows the most about the company. They use many different methods, but the easiest one is to take checks and sign the owner's name to them. Because they also reconcile the bank account, no one ever knows.

For many of these companies, we have suggested internal controls that could have prevented these occurrences. But the owner said, "Oh, no, she (he) would never do that to us." In some ways, the owner becomes an enabler by not putting these controls in place.

To avoid this situation, do the following:

  • As business owner, you should control all checks. When checks are to be written, give only the number of checks needed to the check writer. Then sign the prepared checks, confirming the numbers given and received back. Except when releasing checks, keep the checks under lock and key.
  • Make sure that when the bank statement arrives, it comes to you unopened. Then look over all checks and transactions to make certain nothing is out of the ordinary and review the endorsements on the back of the check.
  • The check writer should not be the one who approves the bills. Someone else must initial all bills, approving them for payment.
  • It would also be best if someone other than the check writer does the bank reconciliation.

We ask you to please protect yourself from this kind of unnecessary pain. Sometimes it is helpful for an outside party (like your CPA) to do an internal controls review of the company and make recommendations.

We have a simple internal control checklist. If you would like a copy, just ask.