5 Ways to Protect your Shop From Embezzlement

No CNC shop owner wants to believe his trusted employees would steal from the company, but the reality is that employee theft in the US is estimated to be as much as $50 billion annually. 

In some cases internal theft may amount to as little as a few office supplies or hand tools that mysteriously disappear. More often, it involves embezzling cold, hard cash to feed an addiction, gambling problem or relieve pressure from creditors. Regardless, it saps the company’s resources and can lead to cashflow and credit problems.

 How does such embezzlement occur? Some common tactics include: 

• Double payrolling, in which the same person is paid twice, or ghost payrolling when a bogus name is added to the payroll list.
• Vendor fraud: Creating false invoices from known suppliers, then paying the invoices to the thief.
• Petty cash: The employee “borrows” from petty cash, often with the intention of paying it back, then ends up creating false expenditures to justify the missing amount.
• Credit card abuse: Charging personal expenses on the company credit card and disguising them as business expenses.
• Take the money and run: Cleaning out company bank accounts and leaving town. 

Determined thieves can be quite creative in coming up with new ways to steal from your business. Their goal is to see that you won’t catch on until damage has been done. So what can you do to protect your company? 

The best defense is a system of checks and balances so that no one employee has unlimited access to the company’s resources. Among recommended actions are: 

1. Reviewing all credit card statements and questioning any suspicious charges.
2. To prevent collusion, having an outside entity (usually your CPA firm) reconcile bank statements and review monthly financial reports.
3. Personally approving each payroll run.
4. Having separate people apply customer payments and make bank deposits.
5. Requiring more than one signature on checks. 

Of course, no system is foolproof which is why it makes sense to have employee theft insurance on anyone who has access to the company finances. When you apply for such a policy you will be required to adhere to a list of preventative policies like the five above. With these practices in place, you can worry less and spend your time on more productive matters.