As a former auditor, it always amazes me why people would risk so much for so little. But they do and you read about these thefts all the time.
The pressure is always on to outdo ones neighbor and provide the ‘good life’ to themselves, a spouse and/or kids comes into play with the need for some easy money. The employee who feels underappreciated and undercompensated may look for ways to supplement their income. Many times it is done just the ‘one-time’ with the intent to pay the money back at a later date. But the good intentions are never followed up on. At first taking the money was a difficult moral decision, but after a while it turns into a way to supplement a life style. The embezzler may justify their crime by feeling ‘entitled’ to the money.
Often embezzlement of an organization’s funds is done by the ‘trusted’ employee. This is the employee that works long hours, never takes a sick day or vacation. In many cases, a major factor in the ‘trusted’ employee’s ability to embezzle so much money was the sole authority to sign checks and being the primary record keeper.
To prevent fraud always require dual signatures before issuing checks over a certain amount. Do not give the employee writing the check the power to also sign the check. However, requiring two signatures does not guarantee protection. Have staff without check signing authority routinely reconcile the statements.
There should be an ‘approved’ vendor list. Audit all payments and verify that the vendor is legitimate (versus fake companies) and that goods received from a vendor actually exists. If your audit uncovers any suspicious activity, immediately investigate.
Here are some steps your organization can take to help prevent embezzlement:
- Establish a system of checks and balances so that no single person has sole control over the organization's finances.
- Periodically review receipts and invoices to make sure they are legitimate.
- Have statements reconciled by employees without check signing authority.
- Apply the same standards for reviewing employee spending to every employee, no matter how well-liked the employee is. Consistency is key to reducing the risk of embezzlement.
- Implement reporting procedures so that employees can report suspected wrongdoing easily and without fear of retaliation. If possible, have an outside party to whom employees can report the matter.
- Have a third party perform routine audits on your organization's finances to spot any discrepancies.
- Require employees working with money to take vacations of at least one to two weeks duration during the year. Often, embezzlement is discovered while the perpetrating employee is out of the office.
- If your organization falls victim to fraud, make sure to reexamine your policies and security measures to shore up any weaknesses that may have made the theft possible.
Make sure to have crime insurance coverage in place with adequate limits so if embezzlement happens the organization will be able to continue.