• Thu. Jun 20th, 2024

Employee Theft is More Common Than You Think. This is What You Should Do About It.

Bynewsmagzines

Apr 18, 2023
Employee Theft is More Common Than You Think. This is What You Should Do About It.

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Opinions expressed by Entrepreneur contributors are their own.

Are you a fan of chicken wings? So much so that you’d be willing to drop $1.5 million on the stuff?

According to a CBS News report, Vera Liddell — a former director of food services at a school district in suburban Chicago — was. She purchased, yes, $1.5 million worth of wings from July 2020 until February 2022 — placing hundreds of unauthorized orders, which were then paid for by the district and then received by her. Authorities are still investigating the scheme, but it’s obvious that Liddell — assuming she’s guilty — likely sold the wings for a profit.

How did the scheme get uncovered? A $300,000 budget overage caught the eye of accountants. Oh, and someone noticed that the school district doesn’t even serve chicken wings.

The theft of so many chicken wings may be a little unusual. But fraud at a business certainly isn’t. Almost every day, you can read reports about how employees are stealing from their employers.

There’s the legal secretary in New Jersey that allegedly wrote more than $184,000 in checks from her firm’s account for her friends and family. Or the procurement manager at a New York business that has been accused by the FBI of creating fraudulent invoices that directed payment into his personal account. Or the human resources manager at a small manufacturer in Pennsylvania who gave herself raises and also spent thousands of dollars of her employer’s money using the firm’s credit card. There’s the financial manager of a Minnesota-based property management company who embezzled more than $1 million from company funds. And the director of accounting services who stole more than $2 million from her employer and used it for trips and other personal expenses.

Related: I Know How To Easily Steal Money From Your Company’s Bank Account

There’s the employee at a small bank who created and paid himself with cashier’s checks using forged signatures. Or the office manager at a law firm in Rhode Island that walked away with hundreds of thousands of dollars in firm funds. Or the employee at a Florida beer distributor that tampered with the company’s accounts receivable system to steal more than $300,000. Or the bookkeeper of a Delaware nonprofit who stole more than $2.6 million over a 25-year period.

It doesn’t really matter to you and me why these people did these things. And it doesn’t really matter how. What really matters is when.

Like many cases of fraud, these incidents — and countless others — happened over a period of time and were ultimately discovered long after the money disappeared. And although prosecuting these people may provide some psychological relief to the business owners who were victims they’re still out of pocket. The money stolen over all those years has been spent. Some of it may be reclaimed. But most of it is long gone. You don’t want this happening. So what should you do to prevent this kind of thing from happening before it happens? Well, there are a few things.

For starters, you don’t put one person in control of everything. You segregate duties. Entering a customer invoice into your accounting system and inputting cash received should be done by two different people. The same goes for the payables side. If three people were ordering, receiving and paying for those chicken wings, it’s likely that one of them would have questioned why the school district was buying chicken wings, let alone why there wasn’t any buffalo sauce included. You should also have an outside person — an hourly financial temp worker — do your bank reconciliations.

Your open accounts receivable report — and financial statements — should be closely reviewed every month by someone other than your accounting staff. That’s you. And while you’re at it, ask your bookkeeper to print out your monthly general ledger activity and take an hour out to read it. It’s not exactly pulp fiction, but your general ledger is basically the financial diary of your business and the devil’s always in the details. Identify and investigate any transaction that seems unfamiliar or unusual. Hopefully, you’ll get reasonable answers, but there’s always a chance you won’t.

Related: How to Reduce the Risk of Fraudsters Accessing Your Business and Personal Bank Accounts

Oversight is critical. A police friend of mine once told me that to perform the perfect crime you can’t include anyone else because once more people get involved it’s no longer perfect. The same goes for accounting.

Another important tactic is to require that everyone — particularly anyone who deals with your money — takes a vacation. When someone is out of the office, and someone fills in for that person, you’re not only making sure that there’s cross-training, but it’s very likely that the fill-in will stumble on something unusual if something unusual is happening. The more frequent vacation is required — at least twice per year — the more you potentially limit the amount of time a fraud could take place. You don’t need workaholics. You need your money.

It’s also important that you have a formal process for disbursing funds. That means getting written approval from multiple people for transactions over a certain amount. The approvals can come using an electronic signing platform, or you can ask your accounting software provider. Yes, even this type of procedure can be circumvented by the wily bookkeeper. But putting these controls in place and sticking to them will pick up anything significant and at the very minimum send a message to all employees that you have a control system and deem it important.

Finally, get insurance and get your financial employees bonded. Make sure you have coverage for theft and business loss or interruption that’s caused by theft. This kind of insurance is relatively inexpensive so buy a lot of it.

As business owners, the problem we all have is we trust too much. We are generally optimistic souls who believe that people wouldn’t harm us. But that’s not really true, is it? If you don’t believe me, I’ve got a few thousand pounds of chicken wings to sell if you’re interested.

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