Raiding the Petty Cash Box or Safe
This theft can be as simple as the employee taking $200 out of the safe or petty cash box.
Prevention: Lock up large sums and keep the key yourself, to minimize access and temptation by employees. Or use security cameras. Read: 20 Cash Handling Best Practices.
Pocketing Cash From Fundraisers
Skimming fundraiser money is all too common in non-profits. But this type of fraud also occurs in businesses that take on a charitable cause. If one person has complete control over the money, from start to finish, the temptation to steal can prove too great.
Prevention: Always have at least two people involved in the workflow of collecting, recording, depositing and remitting donations. Don’t give temptation a chance.
Stealing Office Supplies
It’s shocking how many employees seem to feel it is okay to take large amounts of office supplies home. Theft of supplies usually involves consumable items like postage stamps, Post-it notes or coffee supplies.
The owners of one business started during the Great Depression had a solution. They were so frugal they required employees to turn in their pencils at the end of each day! You don’t need to keep THAT tight a rein. But reasonable controls are a best practice.
Prevention: Put most of your supplies under lock and key and replenish an open supply area sparingly, to keep shrinkage small. A security camera may help. Discuss the use of supplies in a company meeting to set the tone and convey company values.
Stealing Equipment or Raw Materials
In construction and manufacturing businesses, an employee may hide company property in a dumpster or storage area and retrieve it after hours.
Equipment theft also occurs in offices. Think laptops or small document scanners that can be slipped into a backpack or handbag.
Prevention: Lock up or bolt down valuable items if feasible. Label important equipment with a number and let employees know you plan regular audits to ensure items are still on site. Use security cameras and electronic access systems.
The employee steals company products. Examples include jewelry or perfume from a high end retail shop. Typical victims are small retailers that lack shrinkage controls. It is stunning how many owners simply stuff inventory into a storeroom with no tracking system.
Another variation is when a waiter does not charge friends for food or drinks in a restaurant.
Prevention: Use security cameras. Implement an inventory management system and regularly check inventory levels. There’s even POS technology that tracks voided transactions and discounts, and alerts the owner or manager.
Burglarizing Company Premises
Think classic inside job — with or without accomplices. The employee leaves a door unlocked or uses a key to get in after hours. Your company gets ripped off.
Prevention: Install security cameras. Implement an electronic security system to secure after-hours access, and record who is coming and going.
Stealing Returned Merchandise
This theft can occur in a retail or ecommerce setting, or in any business that swaps out old equipment. The employee simply takes returned items home or resells them on Craigslist or eBay.
A lack of controls makes this theft easier. In some small businesses, returns may be stacked haphazardly in a corner. Is it any wonder they disappear?
Prevention: Implement control systems for managing returns and other property.
Claiming a Company Laptop Was Lost
The employee gives a laptop or mobile device to a family member and tells the employer it was lost. The company then replaces the item.
Prevention: Use device management software that enables the company to disable lost devices and track their location.
Setting Up Fake Employees
The embezzling employee sets up fake employees, pockets the pay, and cooks the books to hide the transaction. This happens in businesses with absentee owners or over-trusting owners who do not pay attention.
Prevention: Implement systems to reconcile headcount with staffing expenses. Regularly review a detailed headcount report breaking down expenses by employee. Remember, detailed reports are your friend. Embezzlement is much harder to spot if all you ever look at are summary reports or a high-level P&L.
This may include schemes where co-workers clock in and out for each other. Or it may involve a payroll clerk creating false entries for supposed overtime that he pays himself.
Prevention: Use electronic timesheet systems. Watch overtime pay closely for unusual increases. Compare detailed reports to identify exactly which employees are getting overtime and when — you may spot suspicious patterns.
Failing To Remit Payroll Tax Money
The employee embezzles money earmarked for the employer’s payroll tax remittances or other tax money. Eventually the taxing authority will come down hard on the business owner for not sending in the tax money, and may file a lien against the business or seize property. So not only do you face losses from embezzlement, but you have the IRS on your tail — a double whammy!
This embezzlement example is perpetrated by dishonest bookkeepers, financial staff, payroll clerks and even small outside payroll services.
Prevention: Outsource to a large reputable payroll service such as Paychex or ADP. It goes a long way to prevent an embezzlement nightmare. Or require a regular audit by an outside accounting firm.
Collecting Kickbacks From Vendors
In this scheme, the employee gets vendor kickbacks and you are unaware. Kickbacks can be cash. They also can take the form of additional products and services used in an employee’s side business or home. A warning sign is an unusually close relationship between a vendor and an employee.
Prevention: Get involved in choosing vendors yourself. This minimizes collusion between vendors and faithless employees.
Selling Trade Secrets; Corporate Espionage
The employee sells sensitive information to a competitor. Or the employee takes confidential documents and trade secrets with him when switching jobs.
You see this in high tech startups. For example, a former Google executive was indicted on criminal charges for stealing 14,000 files for self-driving car technology and taking them to a startup later acquired by Uber.
Prevention: Have strong employee agreements. Shared cloud storage systems help you manage and track who has access to what.
Business Identity Theft
An employee secures a line of credit or loan in your company name, using the money for personal purchases. The embezzler then uses company funds to make the payments. Typical embezzlers are finance staff or bookkeepers with access to accounting records and legitimate accounts used to cover their tracks.
A similar theft is when a partner or family member in a family business takes out unauthorized loans in the company name.
Prevention: Implement internal controls for checks and balances. Require detailed reports to see where money is going. Sudden cash flow issues or a negative change in your company credit score may be warning signs of embezzlement. Pay particular attention to services like PayPal and others than allow pre-approved loans or advances against your account.
Starting A Business Using Company Resources
In this situation, employees start their own businesses on company time. In the worst situations employees use company resources such as software code in their new software product, or steal raw materials.
Make no mistake about it: this is theft. Yet, some delusional souls brag on social media about what they are doing!
Still, the employer may get the last laugh. Why? Because generally speaking, an employer owns all work product created on company time.
Prevention: Set expectations properly with employees — and make your policy clear, whatever is. Some employers encourage side businesses but others have a no moonlighting policy. Even if you allow side businesses, make it clear that activities should not be conducted during work hours, and company resources may not be used.
Final Thoughts on Embezzlement
It’s important to be an engaged business owner. Pay attention, ask questions and review detailed reports. Deploy technology to control access and approval levels, and provide early warning of anything unusual. Most of all, implement checks and balances in your processes to make sure no single employee has complete control. Steps like these help protect the livelihoods of everyone in the business.
It is important to learn this so that you can familiarize yourself with it and protect yourself from it.
We had an employee send an email to our customer directing them to change our remittance banking information to another account. Our customer changed our bank information without calling to check or verify the request. Over 20K in receivables was sent to a different bank to an account with a different name on it and we wee never able to recover the funds.
1)The thief made it look like our company email was hacked but we know it was our employee because she used internal documents to copy and paste/forge the signatures need to make the change of bank info.
2) We believe our customer owed us due care by calling to verify the change request but have yet to hear back.
3) The receiving bank accepted the funds even though the name on the deposit was in correct. The bank didn’t care and there was no recourse.
4) The sending Customer/bank could have requested a hold harmless or request to return the wired funds but they didn’t take any action.
It seems like the 21st century banking system is set up to reward and protect the criminal.