Protecting Yourself
Here are some tips from Susan Johnson of Johnson Construction (not her real name) on how to avoid embezzlement.
- Owners should check mail.
- Have bank statements mailed to the owner’s home address or a post office box, or placed in a locked mailbox.
- Mail all vendor payments and client bills to ensure they are actually paid and verify that the amount on the invoice matches the check.
- Instruct clients to give payments to the owner. Do not allow them to hand-deliver payments to your office or give them to employees. Send a SASE with client statements.
- Ask creditors to call the owner’s home number with late-payment issues.
Bank Accounts
- Owners should make all deposits.This will prevent fraud from overpayments that are then refunded and deposited into the wrong account.
- The owner should not take bank statements to the office until he/she has scrutinized signatures and vendors for authenticity. Alternatively, keep the originals and give the bookkeeper a copy of the statements.
- Do not give a bookkeeper signature authority on any accounts.
- If the owner is not willing to critically review bank reconciliations prepared by others, he or she must reconcile accounts themselves. Or have a third party reconcile statements once a month.
- Maintain as few bank accounts as possible. If the company needs a petty cash account, the owner should maintain control of the checks or have someone other than the bookkeeper track them with a check log. The log should include the check numbers, the date signed, and the date mailed.
Credit Cards
- Write to all credit card companies requesting that they not send “convenience checks” with the statements.
- Keep a list of all employees with company credit cards in a secure place and make a note to reclaim the cards when they leave the company.
- Do not allow personal purchases on a company credit card — it makes it more difficult to identify fraud.
Vendor Lists
- The owner should periodically review the vendor list for any unusual patterns, such as names similar to the names of approved vendors or vendors with multiple addresses.
- Inspect files of unpaid invoices and vendor statements to look for invoices that appear different from the norm, have consecutive vendor invoice numbers, or are pre-printed or are not customized forms, have different delivery addresses, different telephone numbers, or current activity on an outdated vendor.
Payroll Risk
- Consider hiring an outside payroll service. That company is responsible for tax payments and reports, both state and federal.
Computers
- An employee can easily install a connection to your computer system using the Internet. Hire an expert to regularly sweep the system for bugs and/or install software to monitor computer use.
- Set up an off-site backup system that does not involve the bookkeeper.
Insurance
- Most insurance companies that write company general liability insurance also offer policy riders for employee theft, also known as employee fidelity insurance. Add a benefit for “reconstruction of records”.
- The amount of insurance isn’t as important as the coverage. Owners should carefully review the fine print to understand exactly what is covered.
Background Checks
- Obtain comprehensive criminal, credit, and driving background reports.
- The most accurate report is at the county court level. Check on the counties of residence as well as adjacent counties.
Make Vacations Mandatory
- Embezzlers don’t take vacations because they can’t risk the owner being tipped off by a bill, letter, or phone call while they’re away.
- Some companies require their bookkeepers to be out of the office one day every month or two, while someone else audits the paperwork.
QuickBooks Tips
from consultant Karen Mitchell
Make sure the Audit Trail feature is turned on. The Audit Trail tracks what all users are doing in the system. In the 2006 version, it is always on, but check it as well as older versions of the program. If someone does delete a check, the program tells you which user deleted it, the day and time, and the check number.
Set up a password that allows only the company owners to have full control. Give bookkeepers limited control — do not allow them to modify the system or to delete from it.
Karen Mitchell is owner of Online Accounting, in San Mateo, Calif., a company specializing in construction accounting.