When an employee is caught embezzling funds at a giant multinational corporation, news outlets are eager to broadcast the story from coast to coast. Yet small businesses are victimized by employee theft every day. When a worker embezzles funds at a small company, it’s certainly significant, especially to those who must deal with the fallout — owners, managers, coworkers, and anyone else connected with the business. Although such incidents may not be the stuff of late-night investigative reports, more than one small business has failed because a single employee took advantage of weak financial controls.
How can you reduce the chances of embezzlement at your company? Consider these safeguards:
- Hire carefully. A company’s strongest internal control is the integrity of its employees. So it’s vital to screen applicants thoroughly. Perform credit checks. Verify prior employment and educational claims, and don’t be afraid to call people. A previous employer might be reluctant to voice concerns about a prior employee’s work ethic or level of honesty, but an alert interviewer can sometimes “read between the lines.” Thoughtful research of an applicant’s background can prevent significant problems later on.
- Segregate duties. While sometimes difficult to implement in a small business, splitting up incompatible accounting functions isn’t impossible. For example, the person who receives cash should not record transactions in the accounting records. A creative manager might cross-train employees so that today’s accounting clerk is tomorrow’s cashier, or a supervisor might assume one of those functions on a periodic basis.
- Conduct regular internal audits. In addition to “surprise” audits of petty cash, business owners might conduct routine reviews of the company books to ferret out and investigate irregular transactions. Careful analysis of the monthly financial statements may also identify signs of embezzlement. If sales receipts are climbing, but cash in the bank is dwindling, there may be a legitimate business reason — or someone on your staff may be stealing money.
- Make your ethics policy clear. If workers know what is expected and what behaviors will not be tolerated, they’ll generally fall in line with those expectations. Of course, any policy is only effective if consistently applied. So managers must follow through, rewarding ethical behavior and taking disciplinary action against violators.