Embezzlers Prey on Small Business

Source: Insight 

Entrepreneurs typically think they are immune to embezzlement because they know how to judge people. They believe their employees would not steal from them. In fact, most embezzlers are the ones we would least likely suspect. 

Thorough background investigations should always be made for new hires. Don’t rely on intuition. 

Here are some warning signs that embezzlement may be occurring: 

·    Sales returns are increasing.

·    Bad debts are unusually high.

·    Collections are slowing.

·    Cash and credit card sales are decreasing, or growing more slowly than usual.

·    Inventory shortages are occurring or increasing.

·    Earnings are declining. 

All these phenomena may be explainable, but they could be signs of fraud. 

Employee behavior should also be observed. Look for: 

·    Changes in living standards.

·    Requests for salary advances.

·    Creditor calls at work.

·    Garnishments.

·    Mood changes.

·    Deterioration in performance.

·    Deferring of vacations.

·    Gambling.

·    Alcohol or drug use.  

Clients expect you to detect fraud. Therefore, skepticism is healthy. Embezzlers are often sloppy and should be detected. For example, many forgers make sloppy alterations of checks. A good accountant should be able to detect this. 

Provide a system where employees can anonymously report information to management. 

Finally, embezzlers should be prosecuted to prevent them from stealing from others. 

For the complete article, see Insight (the magazine of the Illinois CPA Society), March/April 2005, “To Catch a Thief,” which can be found at http://www.insight-mag.com/insight/05/03-04/feat-2-pt-1-ToCatchAThief.asp.