How Safe is Your Business from Embezzlers?

A new client recently learned that her trusted bookkeeper had been stealing from her for many years.  This happens more easily in a small business because they may not have the resources to segment work or the knowledge of controls they can put in place.  Embezzlement is costly on many levels.  It’s not just the dollars lost, which could be significant, but it’s also the dollars to fight it (legal, accounting, staff time), the dollars to pay penalties and interest on unpaid/underpaid taxes/bills, the time to fight it, and the emotions of learning a trusted employee/friend has stolen from you. It’s the second story I’ve heard in the last 2 months and I heard many others in previous years.  The bottom line –  the buck stops with the owner and they can’t just walk away from their books. 

We all want to delegate and books are frequently one of the first tasks to be delegated. Unfortunately, if someone wants to steal, they will find a way.  But there are some checks and balances you can put into place both in procedures and in QuickBooks to limit opportunity for theft or discourage most employees from even trying.

  • Run a background check on employees (I had one client who unknowingly hired someone as her bookkeeper who was out on parole from embezzling).
  • Have separation of responsibilities as much as possible.  Some ideas are:
    • Use different people for Accounts Receivable, Accounts Payable, and Payroll
    • Have one person get the mail and check off the payments that come in against an A/R report; use a different person to process the  A/R (many embezzlers simply skim from the top and keep some checks for themselves)
    • Have one person print the checks, and another person sign them
    • Have backup documents (bills, timesheets) to go with the checks so they can be verified
  • Check and Payment Safeguards 
    • You should be the authorized check signer
    • If someone other than you can sign checks then have a policy that all checks over a certain dollar amount require your signature or 2 signatures
    • Don’t sign blank checks
    • Have a policy on how to handle voided checks; perhaps code them to the same expense account and enter a comment in the memo as to why it was voided; then you can periodically review voided checks by a report on that expense
    • Review the Voided/Deleted  Transactions and Summary Reports
    • Pay bills electronically
    • Setup automatic payments
    • Deliver paychecks in person or use direct deposit
    • Run Missing Checks report periodically
  • Reconcile bank and credit card statements regularly
    • Do the bank/credit card reconciliations yourself – it will be easier for you to pick up on problems that can easily be hidden by embezzlers. 
    • As your business grows, have 2 people reconcile accounts – one to review the work of the first
  • Close the books after certain periods (monthly, quarterly, or annually), so changes can’t be made except by authorized personnel
    • Run Closing Date Exception Report periodically
  • Bank Deposits
    • Make deposits yourself so you know all the checks went in
    • Use a service such as Intuit’s Billing Solutions so payments are made by customers online and automatically deposited into your account
    • Use a check scanner so that checks are automatically deposited
  • Monitor accounts
    • Accounts Receivable (Open Invoices)
    • Accounts Payable (Unpaid Bills)
    • Payroll – review timesheets, wages, overtime, deductions, commissions, etc.
  • In QuickBooks or other accounting software
    • The business owner should be the administrator of the account
    • Every user should have their own login, including the business owner
    • Don’t login as Admin to do your daily activities/transactions
    • Don’t give the bookkeeper your login
    • Limit user access – (eg. they can create & print, but not delete or change)
    • Review the  Audit Trail – this shows all transactions, any changes, and the login used when the transaction was created, edited and/or deleted 
    • Upgrade to Enterprise Solutions for its advanced security features. (I will cover in another article)
  • Ask your accountant and IT/security contacts for additional suggestions

I will be happy to assist in showing how to set up these controls in QuickBooks, discuss Intuit services that might be helpful, and help you with the reports.  I hope you never have to deal with embezzlement. 

What other controls do you use in your company?  Have you had this unfortunate experience?   I’d like to hear.

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One Response to How Safe is Your Business from Embezzlers?

  1. Really good sharing this.

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