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Protect Business, Employees Against Embezzlement

After reading last week’s column on embezzling, KFG operations manager Beth Kangootui shared the following story:

“‘Our accountant is leaving and we think you have the ability to learn bookkeeping. Do you want the job?’ This question began one of the greatest, yet most difficult, lessons I would ever learn.

At age nineteen, with no college degree or accounting experience, I took over the bookkeeping at a travel agency. As I learned to reconcile transactions and balance the books, I noticed that some of the reports from a certain department were not adding up. In my innocence and inexperience, I began to question what I found. Within a few months, I had uncovered nearly $50,000 worth of outgoing transactions that were not coming back as income. The travel agency often fronted the money for airline tickets and allowed customers to pay for them over time. I found many tickets being purchased but never being paid for.

All the reports, unpaid tickets, and missing money traced back to one person. She was over 30 years my senior, the kindest, loving, most generous person I had ever met. She didn’t have the face of a criminal. Could she really be a thief? I remember shaking as I asked her to step into the other room and close the door to confront her. I watched in disbelief as she began to weep and tell me what she had done.

She was fired immediately. I still remember watching her collect her things as tears rolled down her face. I was numb, sad, and afraid. This felt like the hardest moment I had ever faced in my life.

The following weeks were even harder. I poured over reports, transactions, and client interactions to compile a book the size of several encyclopedias full of evidence reflecting fraud, and embezzlement of over $150,000. I was in tears as I handed this to the sheriff.

This experience showed me a dark side to people and business that I had never imagined. I was angry that she had put me in this place. I was sad that she had chosen this path. Most of all, my trust was shattered. I no longer believed I should trust anyone with financial matters in business ever again.”

How can businesses protect themselves and their employees from experiences like this? Here are some suggestions.

1. Hire an outside CPA.

Either outsource your bookkeeping fully to a qualified CPA company or hire one to perform an annual audit of company books. An outside look always gives good perspective.

2. Be careful with cash.

Have strict procedures for handling cash, including at least two people accepting and counting it. Better yet, use innovations in technology like internet payments and phone apps for processing credit cards. These allow even very small businesses to limit cash transactions.

3. Run background and credit checks.

When hiring anyone in a role dealing with finance, background checks and references must be checked and double checked. Credit checks on candidates can also give insight on how they handle their own finances.

4. Apply accounting checks and balances.

Create—and enforce—strict procedures about how things like cash, credit card numbers, check and bank account information are used and stored. Separate bookkeeping and check signing functions; no one person should ever have access to both ends of the transaction. With thorough procedures, it can become nearly impossible for theft and fraud to take place undetected.

Finally, accept your responsibility as a business owner or manager to protect your organization. Pay attention to details and financial operations. Set an example of integrity, reinforced with procedures to support employees in following that example.

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