I just returned from yet another meeting with another CEO whose company was the victim of embezzlement from a trusted employee. While this is the sort of activity has always been going on, it seems like over the last year, it’s been on a serious upswing. Blame it on the economy or the times or whatever you want, but it’s clear that we have more to fear today from “internal” threats than ever before. Make sure you don’t go to sleep in this area. Virtually every one of the business owners said something to the effect “I thought they were family…”
Naturally, there is no way to 100% prevent something like this from occurring. However, there are a few things we can do to minimize the chances of it happening again:
1) Have a routine external checkup/audit of your financials from your outside CPA. Make sure your CPA is experienced with performing these checkups with “internal threats” in mind. There are specific tests they can perform to look for problem areas. If nothing else, talk with your CPA periodically about what’s going on in your business to see if they sense anything out of whack.
2) Make sure to separate duties among your accounting and administrative staff. Accountants call this “internal controls”, but I just call it common sense. Don’t have the same person write checks if they also approve the invoices for payment. The person who writes checks shouldn’t do the bank reconciliation, etc. In small companies, maybe you need to outsource some of these activities? For example, many of our clients have their outside CPA perform the bank reconciliations.
3) Don’t allow employees (or yourself) to circumvent procedures. Procedures are there for a reason (like preventing theft). Make sure procedures are followed at all times.
4) Be on the lookout for “common signs”, like accounting or a administrative employees working strange hours or hours different than the rest of your staff, accounting people making comments like “I can’t explain it, because you won’t understand it”, employees not allowing other employees to do tasks, staff members not being willing to train others in their jobs, being given excuses instead of accurate and timely financial reports, etc.
5) Don’t accept non-timely financial reports. You need timely financials to run your business. Don’t let an accounting person dictate the timing or accuracy of the reports.
6) Have a common set of reports from your accounting system to review every week or month that provide “key indicators” about the health of the business. Most accounting packages like Sage MAS90 and MAS200, Quickbooks, etc. have standard reports like this or they can be created. However, don’t accept Excel generated reports for this (or at least require standard system reports as backup for the Excel data). Excel based reports can be easily manipulated. Reports directly from the system are much more challenging to change.
7) Trust your feelings. If something “feels odd”, pursue it. There shouldn’t be anything about your business you don’t understand. Don’t be intimidated by accounting jargon or terminology. Make your accounting staff explain it to you until you understand it.
It doesn’t matter how much you trust someone. It’s still prudent to “keep an eye on things”….