Do you know the most common embezzlement schemes on businesses and how to protect yourself from them?
Outright Funds Theft
Involves taking cash or bank deposits, or transferring funds to an account controlled by a perpetrator.
Example – A CFO embezzled 2.1 million over 4 years by using funds to pay his AMEX bill.
Prevention – Set separate duties for making payment and reconciling accounts between two or more individuals.
Involves altering or forging checks, or making checks payable to themselves.
Example – Corporate Controller stole $16 million over 9 years by printing checks to their credit card company, then voiding the checks. Issues vendor checks for the same amount but never mailed.
Prevention – Split responsibility for the payables function between at least two employees.
Credit Card Fraud
Includes fraudulent use, authorization, or creation of an employer’s credit or debit card.
Example – Over $200,000 was stolen when a woman opened a credit card in own name but linked to a business owner’s account. Statements went to her address instead of the company.
Prevention – Send company credit card statement and bank statement to the home address of the owner of the company, rather than the business address for review prior to reconciliation.
Vendor Invoicing & False Billing
Involves using fictitious invoices from made-up companies, or trumped-up invoices from actual vendors.
Example – A hospitality facility manager and accomplices invoices $500,000 for equipment rentals that never took place. Invoices were paid to conspirators’ “companies”.
Prevention – Ensure different people approve and vet the selection of vendors and the authorization of payments. Conduct background checks on all vendors you’re doing business with.
Occurs when an employee uses a payroll system to divert funds to themselves or family members.
Example – A hospital payroll director stole $480,000 over three years by “paying” salaries and vacation time to terminated employees.
Prevention – Regular review of payroll records. Functions for issuing payroll checks or deposits and reconciling deposits should be separate. Changes should require approval from multiple levels of management.
Protect your Business
Losses from embezzlement are often never recovered, so preventing it is critical for all businesses. Below are the Do’s and Don’ts of prevention.
- Give end-to-end responsibilities for accounting.
- Send bank financial statements directly to the accounting department. Have someone outside the department review them first.
- Assume long term employees are incapable of embezzlement.
- Stop at a criminal and credit checks for employees who will be handling money. Continue to run background checks even after the hire date.
- Allow embezzlers to leave your employment without pursuing a conviction.
- Implement checks and balances
- Send bank statements to business owners home.
- Pay attention to employee lifestyles and extreme changes to them.
- Promote a culture of trustworthiness and integrity.
- Talk with all employees about fraud detection and internal controls. Have them sign a code of ethics.
- Complete background and credit checks on employees who will be handling money.
- Review cancelled checks that come directly from the bank.