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commercialappeal.com - Memphis, TN

Lax oversight tempts employees to steal

By Paul Tulenko
Scripps Howard News Service
February 9, 2004

Owning and running a small business is a magnificent pleasure often tempered with frustration.

Think how you would feel if you discovered a trusted employee has been hitting the till. The last thing on your list of duties as a business owner is having to monitor the honesty of your employees.

Way back when you were in the start-up phase you tended to know where every dollar came from and where it went. As business expanded, you relinquished some control, and that opened you to the chance for employee embezzlement.

As a business owner, you owe it to yourself to protect your finances, and you owe it to your employees to minimize the temptation to steal.

You say it can't happen to you? It happens every day. Here are some ideas you can use to minimize being one of those bad statistics.

Screen employees

There are agencies that specialize in screening employees. Their results are not perfect, but you stand a much better chance of knowing what kind of person you are hiring with a screening. Depending on what you want to know, the cost ranges between $15 and $100. Caution: Have a bulletproof permission clause in your hiring agreement. Potential problem employees are just waiting for you to make a misstep so they can sue.

Eliminate temptation

Cash is king, and a thief knows this well. Don't ever permit the same person to post to an account they have personally collected.

Here's how they operate: They collect the cash, record the payment in your general ledger and pocket the cash. You'll probably never find the theft without a formal audit, and you may never learn who stole the money or how.

Always make cash handling a two-step process. Have one person take the totals from cash registers and balance back to the person handling the money. Tell all employees what you are doing and you will materially reduce this type of theft.

Mail sense

The least expensive and most foolproof method of handling accounts receivable is to use a post office box. Enclose an envelope pre-addressed to your box with your statements. In addition, personally open all mail, take out the checks/cash, write the amount on the envelope, deposit the money yourself and allow someone else to post to the accounts receivable file. Their balance should check against your deposit.

Divide payables

Financial transactions are composed of two functions, handling the funds and posting the transaction. Always divide these tasks between two individuals. One person lists the accounts payable and another writes the checks. This will reduce the possibility of over-paying a vendor with the expectation of a kickback.

Use mini-audits

Beware the in-house bookkeeper/accountant who never takes a vacation. There may be a reason. Annual audits can uncover major discrepancies, and may even point to a suspect area, but it will do little to deter a dedicated thief. Consider a mini-audit during the employee's vacation as a way to keep mistakes at a minimum and reduce temptation. Yes, insist on vacations.

Outsource payroll

Hire an outside firm to handle your payroll. There are just too many laws and regulations for you to trust this to either yourself or to a book-keeper/accountant. Burden-some state laws and extremely punitive IRS regulations can put you out of business in a flash. Doing payroll wrong can cause huge fines and penalties, and if the IRS thinks you're stealing, you could end up in jail.

Keep good records

Yes, it is possible to handle all your record keeping on the back of an envelope, but you're just asking for an IRS audit. I suggest you use Quick Books products over any other form of business/personal accounting. I have been watching this company for years and have not found any other company that can duplicate their products at anywhere near the cost.

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2004 - The Commercial Appeal is an E.W. Scripps Company newspaper.