People associate embezzlement with major conglomerates that happened in the past, like the Enron and Bernie Madoff scandals. However, employee embezzlement is more common among small businesses than you may think. It accounts for one-third of small business failures.
However, your small business doesn’t have to be part of these stats as there are measures you can implement to prevent it. From hiring a forensic accountant for regular audits to segregation of duties, below, we explore some of the measures small businesses can implement to prevent employee theft.
Segregation of Duties
One major mistake that most small business owners make is giving a single employee too much power over the finances. If your bookkeeper currently deals with all the vendors, pays your bills, and handles all the financial procedures, then you should expect trouble.
This is because they know all the ins and outs of your entity’s money than you and can cook up false expenses and vendor checks to steal from you. An easy way to prevent this is through the segregation of duties. In other words, ensure the employee who cuts the cheques isn’t the one who signs and records them.
Regular and Unannounced Financial Audits
The easiest and most accurate way to ensure your accountants and anyone who comes to contact with your enterprise’s funds doesn’t mess around is by conducting regular and unannounced audits.
Besides helping you identify and prevent embezzlement, a certified forensic accountant enables you to get a better view of your company’s work ethics. It will also help improve your credit rating and portray you as a reliable business to corporate investors.
Comprehensive Pre-Screening for Job Candidates
Another way to protect your business from employee theft is by ensuring that everyone who is part of your business is credible and honest. You can only achieve this by conducting a comprehensive pre-screening of job candidates.
Check out why they left their previous job, review their social media accounts, and call the references. In a nutshell, learn as much as possible about the job candidate before opening your doors to them.
Do Your Part
Running a business as a sole proprietor often requires you to wear multiple hats at once. Therefore, it is pretty standard for you to want to tick accounting off your list by hiring a bookkeeper to handle it all. Unfortunately, while it makes your work easier, it increases the risk of embezzlement tenfold.
In that light, if you can only afford to hire a single bookkeeper or inventory manager currently, don’t leave everything to them because you trust them. Make sure you keep track of inventory. Also, always create time to review the bank accounts and statements.
This will prevent the bookkeeper or inventory manager from getting comfortable with your entity’s capital or profits. Moreover, be on the lookout for any red flags. For instance, if you notice your bookkeeper leading a lavish lifestyle that their salary can’t support, then your business is probably paying the price.
As a person running a small business, it’s difficult to believe that bookkeeper who’s been handling your finances for years can steal from you. Unfortunately, this is the sad truth. As much as you may hate to hear this, people are unpredictable and will switch upon you in a heartbeat.
Therefore, no matter what relationship you have with your employees, hire a proficient forensic accountant. He will expertly handle your audits, segregate the duties, and do whatever it takes to protect your enterprise.