-Eric Swick, CPA & president of Payroll Specialists, LLC / Swick & Associates, Inc.

With the U.S. economy in its current weakened state, employers nationwide must be increasingly vigilant about the potential for fraud within their business. This is best accomplished by putting in place appropriate bookkeeping and accounting controls. Almost all of the business owners I meet have a passion about something in their business, but this passion usually doesn’t carry over to things like bookkeeping and accounting. Unfortunately, I have seen many cases where lack of attention to these areas left the owners extremely vulnerable.

In a recent AP report out of California a bookkeeper was found to have embezzled almost $10 million from a small business and they never knew the money was missing. When they went to recover the funds they were only able to get $2 million from the sale of her property. Obviously this loss had a significant impact on the business.

There are numerous stories like this one where a trusted employee takes advantage of the fact that an owner has delegated the bookkeeping and accounting responsibilities and there are not adequate controls in place to catch them.

Every year billions of dollars are lost by businesses nationwide to employee fraud and theft and the number of incidents are rising. If your business is small, you're especially vulnerable to occupational fraud and less able to absorb a loss than a larger business; in fact, it is not unusual for a small business to be bankrupted by the theft of a single employee. 

If you are in business you need someone to help with the bookkeeping and accounting, but you also need to have checks and balances. The two main reasons that fraud occurs is a lack of basic accounting controls and more often it is due to misplaced trust. 

There are basically two ways that an employee can steal cash from their employer.

1.   Trick the organization into making a payment for a fraudulent purpose. This may involve producing an invoice from a nonexistent company. It can also be from submitting a timecard for a fictitious employee or just padding the hours on a timecard.

2.   The other way to steal cash is to physically remove the cash from the organization. This may be as simple as taking cash from the register, taking cash from the cash deposit or not reporting the sale and skimming the money. 

Here are just a few steps you can take to reduce the likelihood that you too fall victim to embezzlement.

  • In most small business of just a handful of employees, only the owner should have check signing privileges.
  • Do not use a signature stamp. Anyone can steal it and it is difficult to prove that you were not the one using it.
  • Have your bank statements reconciled promptly and review the checks to make sure they are familiar.
  • If you have to give someone else signature authority, then make sure that someone else reconciles the checking account.

Obviously this is not an all inclusive list of steps that you can take but periodically looking at your basic accounting controls or checks and balances is critical to avoid you becoming a victim of employee theft.

I suggest you discuss this with your accountant to ensure you are adequately protected. Our firm provides services to our clients that gives them piece of mind that they are not vulnerable to this type of fraud.

If you have suggestions or comments, please feel free to contact Swick & Associates, Inc. by visiting our web site at /, email us at, or call us at 303-987-1700.

Eric Swick is president of Payroll Specialists, LLC and Swick & Associates, Inc, located in Denver, Colorado specializing in payroll and accounting.

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