Preventing EmbezzlementPreventing Embezzlement

A Guide for SMEsA Guide for SMEs

Walsh EnterprisesWalsh Enterprises Business AdvisorsBusiness AdvisorsHuntington Beach, CaHuntington Beach, Ca

Al WalshAl Walsh CEO Business consultant CEO Business consultant

Preventing EmbezzlementPreventing Embezzlement

• Young businesses eventually reach a point where they need to Young businesses eventually reach a point where they need to rely on internal or external accounting services.rely on internal or external accounting services.

• The biggest fear is that of embezzlement by the accountant or The biggest fear is that of embezzlement by the accountant or bookkeeper.bookkeeper.

• Here’s a practical guide to preventing embezzlement without Here’s a practical guide to preventing embezzlement without placing undue restrictions on your ability to do business.placing undue restrictions on your ability to do business.

Al WalshAl Walsh

Preventing EmbezzlementPreventing EmbezzlementBusiness owners fear embezzlement; and it does happen all too often.

Honest accountants and bookkeepers hate having the stigma hanging over their heads.

You need a practical method for conducting business without fear, distrust, or excessive bureaucracy.

The key to the whole thing is controlling the cash in a practical manner. Many business owners control physical custody and signature authority over all checks. This is impractical, taking up too much of the owner’s time on bureaucracy. You’ve got better things to do.

Try this instead: Give the accountant custody of the checks, and set up signature authority for them at a low level that will enable them to process the majority of payments without being able to seriously dip into your cash (ie: $500, $1,000, $5,000, $10,000 as you feel appropriate. Use your common sense based upon the nature of your business payments.).

Reserve signature authority for higher-value checks to yourself or another trusted person. Don’t use a check stamp for the checks you sign (too easy to re-create or forge).

Make it a standing rule (“enforceable by death”) that when the bank statement comes in, it comes straight to you - still sealed. Review the cancelled checks and ask questions as appropriate. If it comes to you unsealed, immediately look for missing checks - then contact the bank & get copies right away. Something “fishy” is probably going on.

This methodology will enable you to run your business in a practical manner and sleep well at night.

While it doesn’t totally eliminate the possibility of embezzlement, it significantly reduces the window of opportunity and the level of risk.

Your honest accountant will appreciate the flexibility and practicality. The stigma of suspicion will be lifted off their shoulders. If your accountant objects to this methodology, be highly suspect.

As an additional thought:Be very careful with petty cash accounts. The less cash you have floating around, the better. Most businesses need some form of petty cash, but employees seem to find all sorts of excuses to expand their growth – increasing your risk with the amounts and number of people involved.