A Step by Step Guide
This guide will walk you step by step through all the essential phases of protecting your business. The book is packed with guides, worksheets and checklists that make it easy to apply all that knowledge.
Here's what’s in the book:
* How to Prevent Embezzlement
* How to Prevent Burglary And Robbery Loss
* How to Prevent Employee Pilferage
* How to Outwit Bad-Checks Passers
* All these and much much more.
An owner-manager can lose a great deal of money before even suspecting that embezzlement might be going on. That's because by definition this crime is committed by someone in a position of trust. The loss may involve a small amount taken by an employee from the cash register. Or a considerable sum stolen through an elaborate scheme of juggling the books.
Simple controls built into the accounting system can often forestall any such practices in your operation. In any case, the proper internal controls may help document incriminating evidence, without which it is difficult to estimate your loss for insurance purposes or even to prove that it resulted from a crime.
This preventing embezzlement Guide offers suggestions on how you can thwart dishonest practices. It also discusses what you should do if it appears that one of your employees has embezzled from your business.
You may not have has any experience with embezzlers. But many owner-managers have. Everyday there are newspaper stories about how some dishonest employee has managed to divert company funds to his or her own pocket. It happens often enough to make it worth your while to give the subject some thought and to examine your record-keeping and auditing procedures to make sure there are no tempting loopholes.
Embezzlement is "the fraudulent appropriation of property by a person to whom it has been entrusted." That's what makes this crime different from ordinary theft or larceny. The embezzler is someone in your company whom you trust.
You need to have a system of internal control to safeguard money and other property subject to embezzlement. Of course, nobody wants to run a business like an armed camp. But if you have a built-in control system, administer it tightly, and audit it frequently, you may prevent attempts of embezzlement. At any rate, you will have the means to collect evidence that may expose a crime.
Embezzlers usually think that they are clever - smarter than the owner-manager and cunning enough to beat the system. Before you set about to outwit them, it is a good idea to be familiar with some of their methods
Some Common Schemes
The embezzler is usually a trusted employee who is taking advantage of the employer's confidence. In many cases the embezzler has been given more authority than the position calls for. Methods of embezzling are limited only by imagination.
In the simplest situation, cash is received and the employee merely pockets it without making a record of the transaction. A theft of this type is difficult to prevent or detect if the transaction is a cash sale and no subsequent entry is necessary in receipt or accounts receivable records. To reduce temptation, prenumbered sales invoices or cash receipts should be used for all sales regardless of the amount. Spot checks and other monitoring procedures can also help assure you that cash sales are actually being recorded.
A somewhat more complicated type of embezzlement is called lapping. This involves the temporary withholding of receipts such as payments on accounts receivable. Lapping is a continuing scheme which usually starts with a small amount but can run into thousands of dollars before it is detected. For example, take an employee who opens mail or otherwise receives cash and checks as payment on open accounts. The employee holds out a $100 dollar cash payment made by customer "A" on March 1. To avoid arousing suspicion on "A's" part, $100 is then taken from a $200 payment made by customer "B" on March 4. This is sent on, together with the necessary documentation, for processing and crediting to the account of "A." The embezzler pockets the remaining $100, which increases the shortage to $200.
As this "borrowing" procedure continues, the employee makes away with increasingly larger amounts of money involving more and more accounts. A fraud of this nature can run on for years. Of course, it requires detailed record-keeping by the embezzler in order to keep track of the shortage and transfer it from one account to another to avoid suspicion. Any indication that an employee is keeping personal records of business transactions outside your regular books of account should be looked into.
Sometimes an embezzler who is carrying on a lapping scheme also has access to accounts receivable records and statements. In this case, he or she is in a position to alter the statements mailed out to customers. Thus the fraud may continue undetected over a long period of time, until something unusual happens. A customer complaint may spotlight the situation. Or the matter may be surfaced through audit procedures such as confirmation of accounts receivable. One embezzler who also handled the customer complaints was able to avoid detection for many years. The amount of shortage reached such proportions and covered so many accounts that he dared not take a vacation. He even ate lunch at his desk lest some other employee receive an inquiry from a customer concerning a discrepancy in a statement. The owner-manager for whom he worked admired his diligence and loyalty. Fellow workers marveled that his apparent frugality enable him to enjoy a rather high standard of living. But the inevitable finally happened. this employee was hospitalized with a serious ailment, and in his absence his fraudulent scheme came to light. One reason many firms require regular vacations is to keep some "indispensable man" from dispensing with company funds illegally.
Sometimes company bank accounts are used for check-kiting. In fact, losses from some large check-kiting schemes have been great enough to cause a company to go broke.
In the usual scheme, the check-kiter must be in the position to write checks on and make deposits in two or more bank accounts. One account could be the embezzler's personal account and the other a business checking account. If the embezzler has an accomplice in another business, two business accounts may be used. If your company has more than one checking account at different banks, these accounts may be utilized to carry out the fraud.
The check-kiter is taking advantage of the time period (or "float") which is the number of days between deposit of a check and collection of funds. There may be several days between the date when a kited check drawn on bank "A" is deposited in bank "B" and the date the check is presented to the bank "A" for payment. Assuming that it takes 3 business days for checks to clear, a simple kite between two banks could be accomplished as follows:
On December 1, a check in the amount of $5,000 drawn on bank "A" is deposited in bank "B." On December 2, the check-kiter cashes a $5,000 check payable to cash and drawn on bank "B" with a teller at bank "B." Since the original kited check will be presented to bank "A" on December 4, the check kiter on or before that date will deposit a $6,000 check drawn on bank "B" in bank "A" not only to insure payment of the original kited check but to increase the amount of the kite. As the process is repeated the kited checks become larger, more cash is withdrawn, and the scheme can continue until the shortage is covered - or until the kite "breaks" when one of the banks refuses to honor a kited check because the funds on deposit are uncollected.
A temporary kite may be used by a dishonest employee to conceal cash shortage at the end of a period by depositing a kited check into your company account. This brings the bank balance into agreement with the books. CPAs will request "cut-off" bank statements to detect frauds of this type.
Payroll frauds are yet another source of loss to management. Occasionally an enterprising embezzler has added the names of relatives or fictitious individuals to the company payroll and thus enjoyed several salary checks each week instead of one.
Sometimes, when a company becomes large enough that the owner-manager can no longer exercise personal surveillance of accounting activities, opportunities arise for a dishonest employee to set up a dummy supplier and falsify documentation of fictitious purchase transactions.
Dishonest employees can figure out any number of ways to defraud their employers. Purchasing agents can accept "kickbacks" from suppliers from purchasing goods at inflated prices. Salespeople and others can pad their expense accounts. Personal items can sometimes be bought and charged to the company. Cashiers in retail firms can undercharge relatives or friends for merchandise. False vouchers can be prepared to conceal thefts from petty cash funds. Overtime can be falsely recorded. Moreover, quite substantial amounts of money may be lost through the cumulative effect of such seemingly minor abuses as personal use of company postage stamps, supplies, and equipment, as well as charging personal long-distance phone calls to the business. And so on.
Other books in this category that may interest you:
A Step by Step Guide to Strategic Planning
A Step by Step Guide to New Product Development
A Step by Step Guide to Implementing MBO
A Step by Step Guide to Business Productivity Improvement
The 70 Best Business Ideas for Small Business Managers
A Step by Step Guide To Managing a Family Run Business
A Step by Step Guide to Negotiating the Buying or Selling of a Business
A Step by Step Guide
Essential Ingredients for Success
A Step by Step Guide to Managing Your Business Inventory
A Step by Step Guide to Merchandising in a Retail Store
BA Step by Step Guide to Purchasing and Supply Chain Management
A Step by Step Guide to Managing Risk In Your Business
Guide to Self Audit the Planning Activities in a Small Business
Guide to Self Audit the Production Management in a Small Business
A Step by Step Guide to Purchasing Management in a Retail Business
A Step by Step Guide to Buying and Selling a Business
A Step by Step Guide
A Step by Step Guide
A Step by Step Guide to Quality Control Management System
Perform This Self-Audit to Increase the Effectiveness of Your Business
Oportunidades de Negocio (Nuevos Negocios)
Guía para Elaborar un Buen Plan de Mercadotecnia para su Negocio
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