Keep Watch Over Employees Who Might Embezzle

Suppose, your controller is one of your key employees-he’s not only indispensible, but he’s also hardworking, loyal and can be trusted to take care of the company finances. But one thing you don’t know is that his personal finances are in deep trouble, and he’s using your company’s money to keep creditors at bay.Why do employees embezzle? It can be caused by financial problems or an expensive drug habit. Sometimes, employees are drawn into embezzlement. The employee might take out a short-term loan planning to pay it back right away, but then he gets in deeper and deeper. Other times, it’s just plain greed.

Employers can take several paths to reduce the risk of being victimized by an embezzler. First, employers should run a credit check before hiring someone who will be handling money. Note that an employer generally would not want to investigate employee credit histories. But a credit check can be justified for the employee who will have access to the company’s money and the opportunity to steal it. Next, perform criminal background checks. When conducting credit or criminal background checks, be sure your company is in compliance with the Fair Credit Reporting Act.

Other key ways to prevent embezzlement are the following:

• Avoid allowing the finances to be handled and controlled by one employee. Don’t allow the same person who pays the bills to prepare bank deposits.
• Insist that any employee who has access to money take vacation in week-long increments. This enables you to examine his/her records. It’s more likely for an issue to surface during a week-long absence.  While the employee is absent, have another employee perform the absent employee’s duties to look for unusual transactions.
• Be alert to disgruntled or stressed employees or those who have indicated they are having financial difficulties. Also, look for any unexplained significant changes in an employee’s living standards.

Most employee theft incidents are revealed by coworkers, but many are still hesitant to report these occurrences to their employers. Set up a system that allows employees to report employee theft anonymously.

Sometimes an embezzler can still get past a stringent employer. If that is the case, the employer can do one of the following:

• File criminal charges.
• File a civil lawsuit against the employee.
• Submit the loss to the company’s insurance carrier.

If filing criminal charges, be prepared to present thorough documentation to the police or district attorney to convince them to prosecute. The employee may get probation instead of jail time and be allowed to pay restitution in small amounts over many years. By filing a civil lawsuit against the employee, the employer has the opportunity to recover the stolen funds, assuming that the embezzler has the assets available to repay. Plus, the employer has the chance to seek punitive damages. The employer also may be entitled to injunctive relief, including the possibility of freezing the embezzler’s assets, if the stolen funds can be traced.

Much of the money lost to businesses might have been saved had business owners made the prevention of embezzlement one of their top priorities. By establishing internal controls and letting employees know that you are vigilantly looking out for embezzlement, you can deter many of your employees from attempting to steal in the first place.