Employee theft happens more frequently than you hear or read about. It’s believed that only a small percentage of cases of employee dishonesty are reported and prosecuted. Too often, the employee is just dismissed and moves on to steal from someone else. In other cases, especially where financial controls are weak, the employee may steal small amounts for years without being detected.
There are many things you can do to spot employee theft in your business. Have an inquiring mind, ask lots of questions, and never accept answers that don’t make sense. Spend time each month monitoring your financial results. Look for inconsistencies, such as inventory declining in a slow sales month or excessive customer returns. Listen to customer complaints about late deliveries or missing items, and don’t accept “computer problems” as an excuse. If you know your business, you don’t have to be an accounting expert to sense when something is wrong.
You could also spot-check your accounting records by reviewing one category each month. For example, you might scan the check register to see just what payments are being made. Look for missing check numbers and ask to see any voided checks. Another month you might review the payroll log or look over the records of returned items. Look for multiple entries of similar items or suspicious customer names.
Finally, watch your employees for changes in behavior or spending that seems to be beyond their means. And beware of an employee who insists on doing all the detail work and never takes a vacation. It could be the sign of someone with something to hide.
For assistance with this or any business problem, contact our office.
David Bradsher, CPA is a Washington DC / Northern Virginia area CPA who works with small business owners and non profit leaders on a monthly basis to provide them with guidance and advice on how to grow their organizations, minimize their tax liabilities and increase their bottom line.