TEN WAYS TO GUARD AGAINST EMPLOYEE THEFT

employeetheftAll companies need internal controls–an effective system requiring that employees adhere to company policies and procedures that will minimize possible errors in data and safeguard assets. Without a strong system of internal controls, it’s difficult to know for sure if financial information is accurate and assets actually physically present. Bottom line: When you have tighter controls, you have more reliable financial data and less chance of theft and fraud.

While paranoia and micromanagement are not attractive qualities that a small business owner necessarily wants, it’s nevertheless important for an owner to be aware that theft happens frequently in all businesses, and small businesses are not immune. It can occur with cash drawers, receivables or payables, or inventory. Routine controls can help prevent it.

Below are 10 safeguards that are relevant to most businesses–actions you can take to find out if theft or fraud is taking place in your company…and then guard against it!

1. Check financial statements.

Review financial statements for abnormalities between the prior month and year-to-year. Never have just one individual who is responsible for both financial oversight and preparation of financial statements.

2. Review your budget.

Analyze actual to budgeted figures and review variances–what you budgeted for in each category versus what you spent. Big discrepancies are a red flag.

3. Mandate employee vacations.

Make employee vacations mandatory. This can highlight misappropriations or procedures not being followed, which become apparent when the employee is gone.

4. Monitor expense reports and reimbursements.

Require that all employee expenditures–on business trips and in the office–have to be approved and accompanied by documentation.

5. Establish payroll controls.

Every employee added to the payroll needs human resources or owner approval. Also, review the payroll to make sure duplicate checks are not paid to the same employee. The payroll clerk could be splitting the second check with the employee.

6. Check hourly employee hours.

Make it a practice that all hourly employees have approval of hours before wages are paid.

7. Review repair/maintenance and miscellaneous accounts.

Review the repair and maintenance account, as well the miscellaneous expense account, for any unusual items. You might be surprised how “miscellaneous personal expenses” show up here!

8. Segregate check writer and check signer duties.

The same employee should never perform these two functions. Segregation of duties is most important! In fact in many businesses, the check signer is not even in the accounting department.

9. Reconcile payments to vendors.

To prevent “fake” invoices being paid, reconcile invoices with purchase orders and receiving reports.

10. Control inventory and supplies.

Small items and supplies have a way of “walking off” and should be locked up. Periodic physical inventories should be taken and reconciled with book inventory. Order filling and shipping documents should be spot checked against actual physical goods.

Regardless of the amount of control measures, nothing is 100% foolproof. For every control measure, there can be an employee trying to figure out a way around the controls. The plan might be the theft of assets or completing a job below standards. Once controls are in place, they should be periodically reviewed and revised, if necessary, as operations change or weaknesses noted. Internal controls…always a work in progress!

Source: Association of Accredited Small Business Consultants (www.aasbc.com)

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