Embezzlement

June 14, 2018

 

Q. I’m devastated. I have just found that the bookkeeper for my business has been embezzling from me. I’m not sure of the full extent of the loss, but she has been doing it for at least the last couple of years. What should I do?

 

A. Sadly, we have seen this many times, so know that you are not alone. The Small Business Administration estimates that 30 percent of all small business failures are the result of employee theft. We recommend the following five steps:

 

  • Investigate – These are serious charges. Make sure that you are correct. Collect enough evidence to make a solid case (e.g., assemble cancelled checks, bank statements, credit card statements, etc.).

 

  • Confront and terminate – Once you have investigated thoroughly enough to be very confident you have convincing evidence of embezzlement, confront the employee you suspect. Have another person you trust, preferably an HR professional, present for the meeting. You want to have a witness to what is said. 

 

Don’t make accusations. Explain what you have found and ask for an explanation. If you have investigated properly, it is unlikely you will get an explanation that convinces you there was no wrong doing. If you remain convinced that she embezzled, terminate her for cause, effective immediately (this will enable you to make a strong case for not allowing her to collect unemployment). Cut off all access to company computers, records, offices, etc. (you will need to plan for this before the meeting).

 

If her explanation leaves you uncertain as to her guilt. Cut off her access as described above and put her on temporary leave pending further investigation. Terminate her employment for cause if further investigation convinces you that your initial thoughts were correct.

 

  • Get temporary accounting help – If you are like most small businesses, only one person knew the books and you just terminated her. Get immediate accounting help from a reputable temporary service—they will have had experience with this type of situation. You will want to have this person do a thorough investigation of the embezzlement. Depending on what was done, there may be tax implications. Make sure you are clear regarding how to handle this.

 

  • File criminal charges – Too many employers refuse to press charges against the person who stole from them. We believe you have a moral obligation to pursue criminal charges. One of our clients whose bookkeeper embezzled from him later learned that she had also embezzled from a former employer. Our client had done a thorough background check when he hired the bookkeeper, but there was nothing on her record because the former employer hadn’t pressed charges. If he had found the previous theft, he would not have hired her. You owe it to other small business owners to make sure that the thief who stole from you can’t do it again. The best way to do that is by making sure that she has a criminal record.

 

  • Establish checks and balances – As the owner of a small business, periodically review credit card statements, bank statements, cancelled checks and payroll ledgers. It is not enough to simply review your internal books. A skilled accounting person can make the books look completely legitimate while covering up wrong doing. If you aren’t sure how to effectively ensure that money isn’t leaving your business inappropriately, seek help from someone who can show you how to do this.

 

Small business owners are often reticent to check behind the person doing their accounting because they think it demonstrates a lack of trust. We say that it is unfair to the person doing your accounting not to check behind him or her. Almost all of us will face periods where cash is tight—sometimes very tight. Giving a person who is facing these types of difficulties unfettered access to the company’s cash is unnecessarily tempting an otherwise honest person. As one of Doug’s college professors used to say, let’s keep honest people honest.

Unfortunately, theft and embezzlement are rampant in the small business world. You need to deal decisively with the situation you have discovered, take steps to make sure that the guilty party can’t do it to someone else, and put procedures in place to ensure you aren’t burned again.

 

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