Kelly Bullis: Protect your business from embezzlement

It seems like recently, when one opens up the paper, there is another story about a business being a victim of embezzlement. What's going on here? Did folks suddenly start stealing from their employers? Actually, no - this problem has been going on for as long as there have been businesses.

A common mistake is to think that only people that look or act "bad" would embezzle from their employer. In fact, the usual statement we hear from a business owner after such a heart-breaking discovery is, "I just can't believe this could happen. She is such a nice person. I trusted her. Why did she do this?"

Many times, the person appears to be an upstanding citizen with a good reputation.

How does embezzlement happen? From a CPA's perspective, the answer is simple. It's part of what we look closely at when we perform an audit. It's called "internal controls." In common English, it means separating bookkeeping duties so that no one person has the opportunity to commit embezzlement without a high likelihood of being caught.

Even better, make sure the bookkeeping staff knows that they are being watched and checked regularly. An example would be putting a camera above a cash register and showing the clerk the video of them counting out cash. This one simple procedure has been known to significantly reduce theft at the cash register. Another example is having the bank statements sent directly to your CPA and they perform the monthly bank reconciliation.

Another control is to lock out the function of creating new vendors, customers and employees on your accounting software. Only you or an employee other than the person who prepares checks should be allowed to do this. I could go on and on with examples, these are just a sample.

Why would somebody commit embezzlement? Good question. Experts have studied the criminal intent for a long time. There are some common patterns, but by no means are they all inclusive. Some indicators may be an employee with a large medical bill and no insurance; one with a child at an expensive university; debts causing risk of bankruptcy; major project such as building a home; problems living within with means. Usually a warning sign of this is the bookkeeping employee regularly asking for their paycheck earlier than normal distribution time.

How do you protect yourself from being a victim of embezzlement? The first step is being concerned enough to make some changes. You should consult with your CPA for specific advice that matches up with your unique business situation. They should be able to help you design a system of internal controls.

• Kelly Bullis is a Certified Public Accountant with over 30 years of experience.