Embezzlement is a growing business
In the United States billions of dollars are lost every year to employee theft and fraud. I have seen estimates ranging from $50 billion a year to $400 billion. I have also seen a handful of embezzlement cases right here in our community. Embezzlement is a personal affair. It’s also disgusting. Embezzlement is done by your friends, your employees, those in positions of trust with access to the company’s assets. Statistically, your most trusted employee is often the one who is the culprit. Of course, only a small percentage of businesses, profits and nonprofits, have had an embezzlement, but it is almost always a shock when the crime is discovered. Sometimes the business has insurance or a bond to cover employee theft, but more often than not that is not the case. This form of asset misappropriation can be theft of inventory or supplies, but the most common criminal activity involves either cash or the business checking account, whether it is theft of cash on hand or from deposits, skimming of receivables or fraudulent disbursements sometimes with the assistance of a coworker or a vendor.My observation is that embezzlers have often had something happen at work that causes them to rationalize their theft, like the company has been unfair to me. What may start as a small scheme to get paid what I’m worth mushrooms. Sometimes health costs or a gambling habit or other form of financial hardship is the rational. Alcohol or drug abuse sometimes play a part. Watch for a lifestyle inconsistent with income. Again, my observation is that embezzlers are somewhat like wife-beaters, even after they are caught and charged criminally, they move on to another business and pick up their old ways. Amazingly, most embezzlers are not prosecuted. Where nonprofits have a unique potential for abuse, and I have seen no abuse, is the collection of cash at fundraisers. Cash should be collected and counted by at least two people with a tally verified by a third person. Cash should be immediately deposited and cash carriers should be escorted by others to prevent robbery. Most of us have never stolen in our lives and therefore assume everyone else shares those values. Unfortunately, that is not always the case.
There are lots of procedures that can be implemented to minimize the chance of embezzlement, and they vary depending upon the nature and size of the business.Always have a system of checks and balances layers of control. Never allow the person who opens the mail to also create the bank deposits; don’t allow the person who deposits the money to also do the bank reconciliations. Bank reconciliations. Painful but necessary. Take care to coordinate the accounts receivables with deposits. Review vendor’s bills and, if possible, sign the checks yourself. Pay attention if you see checks going to named individuals or checks for materials out of the mainstream of your business. Every article I have read suggests that you make sure your key staff takes at least one solid week of vacation a year, as embezzlements are often discovered while the embezzler is on vacation. Be wary of someone who never takes a vacation. (Um, I thought those were the good employees!) Monthly financial statements are a good tool to discover fraud and embezzlement. It goes without saying that the check signer should not sign a check to himself/herself, although I think we do that regularly at our firm. But one thing is for sure, embezzlement would never happen at our place. And that’s what they always say. Fortunately, embezzlement is a rare occurrence. So keep the odds low and be smart. Have a happy, healthy and prosperous New Year. Jim Porter is an attorney with Porter andamp; Simon, with offices in Truckee, South Lake Tahoe and Reno. He is a mediator and was the Governor’s appointee to the Bipartisan McPherson Commission and the California Fair Political Practices Commission. He may be reached at firstname.lastname@example.org or at the firm’s web site http://www.portersimon.com. 2007