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This is not a course in how to get rich by embezzling funds from the company your work for but a group of suggestions on how to protect your company from this heinous crime.
Embezzlement is defined as theft of money or property from a business by someone who has custody of the funds or property. Often embezzlers are the people you would least suspect. After all you wouldn’t put your money into the hands of someone you didn’t trust now would you? So don’t get fooled by an innocent looking face. Of course not everyone you meet who comes across as trustworthy is a crook in disguise. But by putting into place a few simple procedures you can protect your company.
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First of all whether you are just starting in your business or been in business for awhile, educate yourself in the basics of bookkeeping. You should be familiar with the terms used and their definitions as well as the proper flow of paperwork.
Secondly know how to read your financial statements. Understanding the types of accounts and how they increase or decrease as transactions are posted will help you see when things just don’t look right – a possible sign that someone is dipping into your funds for their own benefit. You should at the very least have a realistic “guesstimate” of how much you are spending for the different expenses your company incurs. If you are seeing higher than expected expenses on your financial statements, than you might have a problem that needs to be investigated. If you do not review your Balance Sheet and Income Statement each and every month you might miss these important clues.
Review your bank statements every month checking for checks or charges that do not make sense to you. If you are making deposits made up of cash and not preparing and making the deposits yourself (which I highly recommend) than also verify the deposits recorded on your bank statement. I know you might leave the actual reconciliations to your bookkeeper but you should give the statements a once over yourself. You will also want to check the dates, amounts and signature on all the checks because the automated systems the banks now use do not always catch unsigned checks, old dates and mismatched amounts.
Only you should have the responsibility of signing checks. If you are signing all the checks you will have the opportunity to spot errors and possibly outright thefts.
Company credit cards should be used judiciously and statements should be checked by you when they arrive each month. If you cannot identify a charge then investigate it with the company holding the card. Often the problem is cleared up quickly and you realize after talking with them it is a legitimate charge. But better safe than sorry.
Payroll checks can be especially problematic even when processed by an outside payroll service. After all, who is calling in the payroll? Not you the business owner I bet. Check out your payroll reports before the checks are given out. Know your employees pay rates. Verify that vacation, sick and other paid days off are correctly handled.
Only on your authority should an employee expense reimbursement or loan be issued. Make this a hard and fast rule.
There are many, many hard working and very honest bookkeepers but a few have unfortunately given these good people a black eye. By being vigilant you are not only protecting your company but you are verifying that the bookkeeper you employ is in fact the trustworthy person you already believe them to be – and for all you great bookkeepers this is protection for you as well. You cannot be accused of misuse of funds if you don’t sign checks, use credit cards and authorize payments.