EMBEZZLEMENT CAN HAPPEN TO ANY BUSINESS

By David Fulton, CPA


“Show me a company with a very busy manager, and I’ll show you a company that can be ripped off.” So goes the song of the embezzler.
The bookkeeper looking for an easy mark likes to work for a manager who says, in words or attitude, “I don’t want anything to do with the books; that’s your department.”
No company is too small to be safe from embezzlement. In fact, small companies, because of the limited number of employees, have a serious problem. They don’t have enough personnel to divide the money-handling functions among different employees. Usually the same employee opens the mail and prepares the checks, payroll reports, deposits, monthly billings, bank reconciliations, and perhaps even the financial statements.
If you have employees handling money functions and you are not personally acquainted with the necessary safeguards, you should have a review of internal controls done by your accountant.
Some very simple embezzlement techniques used by dishonest employees in even the smallest companies include the following:
Overpaying payroll taxes to the government, then applying for a refund and cashing the refund check.
Establishing a second checking account with the company’s name and signature authority of the bookkeeper (often done in the same bank as the legitimate company account).
Making duplicate payments on different dates for the same invoices and sending one to the real vendor and the other to an account set up by the embezzler.
Even small companies can benefit from the segregation of duties established in larger companies. This control is accomplished by having the owner/manager be involved in certain paper-handling activities.
Once your internal controls have been established, they should be reviewed annually to see that they are effective and that they are being followed.


David Fulton is a Certified Public Accountant that graduated and became a CPA in the early 1980s. He earned a Master of Science in Taxation degree. He has operated his own business, a CPA practice, for 22 years, located at 320 Spanish Street in Sutter Creek. You can reach him at 209-267-0305.

COPYRIGHT 2009 AMADOR COUNTY CHAMBER OF COMMERCE