How to Prevent Embezzlement

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.

Everyone needs To be familiar with the Decision Making Process. We all rely on advice, and tools or techniques, to assist us in
our everyday lives.

When we head out To consume, the restaurant is the tool which supplies us with all the information needed to choose what to
purchase and how much to invest.

Running a Business also needs making decisions using information and techniques - how much stock to preserve, what price to sell
it in, what credit agreements to offer, just how many people to employ.

Decision Making Process in business is the systematic process of identifying and solving issues, of asking questions and finding
answers. Decisions usually are made under conditions of uncertainty. The future is not known and occasionally even the past is
suspect. This guide opens the door for business owners and managers to find out about the selection of techniques which may be
used to improve your decision making process in a world of doubt, change, and uncontrollable circumstances.

A General Approach to Decision Making Procedure. Whether a scientist, or an executive of a major corporation, or a small business
owner you are able to benefit from improving your decision making skills. The general solution to systematically solving issues is
exactly the same. The following 7 step method to enhance management decision making can be utilized to study nearly all problems
faced by a business enterprise.

State the problem. A problem first has to exist and be recognized. What's the issue and why is it a issue. What is perfect and how
do present operations vary from this ideal. Describe why the symptoms (what is going wrong) and the causes (why is it going
wrong). Attempt to define all terms, concepts, variables, and relationships. Quantify the issue to the extent possible. In case
the issue, not correctly and quickly fulfilling customer orders, attempt to ascertain how many orders were incorrectly full and
the length of time it took to fill them.

Establish the Objectives. What are the objectives of the study. Which goals are the most crucial. Objectives usually are stated by
means of an action verb like to decrease, to grow, or to enhance. Returning to the customer order problem, the significant goals
is: 1) to raise the percentage of orders filled correctly, and 2) to reduce the time it takes to process and order. A
sub-objective could comprise to simplify and streamline the order fulfilling process.

Develop a Diagnostic Framework. Next set a diagnostic frame, that is, determine what approaches will be utilized, what types of
information are required, and also how and where the information is available. Is there going to be a consumer survey, a summary
of company documents, time and movement tests, or something different. What are the assumptions (facts supposed to be correct) of
this study. What would be the standards used to judge the study. What time, budget, or other constraints are there. What type of
qualitative or other special processes are going to be utilized to examine the data. (Some of that will be covered shortly). In
other words, the diagnostic framework establishes the scope and methods of the whole study.

Collect and Assess the Data. The next step is to collect the information (by following the methods created in Step 3. Raw data is
then tabulated and organized to ease analysis. Tables, graphs, charts, indicators and matrices are some of the conventional ways
to arrange raw data. Analysis is the important prerequisite of sound business decision making. What does the data reveal. What
facts, patterns, and trends could be viewed in the information. Many of the qualitative methods covered under can be utilized
during the measure to ascertain facts, patterns, and trends in data. Obviously, computers have been used widely in this step.

Generate Alternative Solutions. After the analysis has been finished, some specific conclusions about the nature of the problem
and its resolution should have been reached. The next step is to develop alternative solutions to the problem and rank them in
order of their net benefits. But how are alternatives best generated. Again, there are some well established techniques such as
the Nominal Group Method, the Delphi Method and Brainstorming, amongst others. In these methods that a group is involved, all
people who have reviewed the information and analysis. The approach will be to have an informed group suggesting many different
possible solutions.

Grow an Action Plan and Implement. Pick the best answer to this issue but be certain to understand clearly why it's best, that is,
the way that it achieves the goals established in Step 2 greater than its alternatives. Then develop a productive method (Action
Plan) to implement the solution. At this stage a significant organizational thought arises - that will be accountable for seeing
the implementation through and what authority does he have. The chosen manager ought to be accountable for seeing that all
deadlines, tasks, and reports have been performed, fulfilled, and composed. Details are all important in this measure: reports,
programs, tasks, and communication will be the key elements of any action program. There are several methods available to decision
makers implementing an action plan. The PERT method is a way of setting out an whole period like an action program. PERT is going
to be covered soon.

Evaluate, Obtain Feedback and Monitor. Following the Action Plan has been implemented to Solve a problem, management must evaluate
its effectiveness. Assessment Standards must be ascertained, feedback channels developed, and monitoring performed. This Step
should be performed after 3 to 5 weeks and again at 6 weeks. The target is to answer the main point question. Has the issue been
solved?

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