How to prevent employee theft

Employee embezzlement and other forms of theft often follow a predictable pattern. First, the employee is faced with significant external pressures such as high gambling debts, mounting medical bills, or substance abuse problems. To relieve this pressure, he or she finds an opportunity to steal from the company, especially if the firm's internal controls are perceived to be weak. From there, it's easy to rationalize fraudulent behavior -- "I'll just take some money now, and pay it back later," or "I deserve a raise, but management's stingy, so I'll provide it myself," or "They've got plenty. They'll never miss it."

As a business owner, what can you do to prevent employee embezzlement and theft?

* Screen job applicants thoroughly. Review a potential employee's criminal history, verify education and past employment, and check references. If an applicant is willing to lie on a resume, why should you trust that person with your business assets?

* Make your policy crystal clear. Your employees should know that theft of any kind will not be tolerated, and managers should model integrity in their interactions with clients, competitors, and government regulators.

* Segregate duties. If one employee takes in cash, someone else should prepare or oversee preparation of the cash deposit, and another should record transactions in the company books. Although such separation of duties may be hard to establish in a small company, creative owners will find ways to prevent such transactions from being concentrated in the hands of a single employee.

* Conduct regular audits. Employees should know that their activities are subject to surprise reviews and an annual independent audit. They'll be less likely to steal if they know that someone is following after them, checking their work.

* Track down customer complaints. If a customer claims that a bill was paid but a credit doesn't show up in the accounting records, an employee might be stealing your business receipts.

Many Happy Returns

Ed Gallatin CPA