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Subtle Aspects of Embezzlement and Misappropriation Prevention

Subtle Aspects of Embezzlement Protection: using Wilmington NC Widgets and its CPA as examples.

You only have to read the StarNews or watch WRAL here in fantabulous Wilmington, NC to recognize assets need protection. CPAs occasionally see embezzlement cases. What usually strikes me in these cases is not the monetary loss, but the sense of betrayal as once trusted employees, and friends maybe, leave the business to perhaps face criminal charges.  Here are some subtle aspects of embezzlement protection using Wilmington NC Widgets as an example.

Common Senese and Due Diligence

The CPA for Wilmington NC Widgets uses internal accounting controls to help protect its cash from embezzlement. While we’re concentrating on other issues here, examples of internal controls include turning on the audit trail in Quick Books, verifying the activity in the checking account is legit by going online every few days, keeping the petty cash drawer secured, etc.  These don’t offer 100% protection, but they close the barn door.  Common sense and diligence are something QuickBooks doesn’t come equipt with, so they are an employer (and trusted CPA) must!

But Wilmington NC Widgets itself can add other deterrents the CPA can’t.

Define Stealing = Unauthorized Borrowing?

In Ethics we’re taught that you can constuct a scenario, for almost anyone, where they will steal. But what is stealing? Folks caught embezzling sometimes speak of it as borrowing. Why? Sometimes they’re just bad people making excuses.

But sometimes financial pressure on good folks just builds gradually, and opportunities otherwise ignored, now seem, somehow, OK . The husband is laid off and money is tight. The mortgage payment is due today. The Wilmington NC Widget’s deposit won’t be taken to the bank until Thursday. They get paid tomorrow and convince themselves the unofficial “loan” will be re-paid. Even though they would have defined this as stealing if asked before the financial pressure evolved. Your CPA’s internal controls didn’t help in this scenario.

Some folks are brought up thinking borrowing is the norm, i.e. sisters who automatically assume they can borrow each others clothes.

So, define unauthorized borrowing as stealing for employees.  Have the CPA for Wilmington, NC Widgets help.

  • At office meetings, state there is no borrowing, of anything, from WNW without permission.
  • Similarly, have the no borrowing without permission policy stated in WNW employment contracts and procedural manuals.
  • Cute, and yet informational, posters in the breakroom are how the government inform the greater employed cohort of their policies, why not you?

Let Them Know You’re Watching

The CPA and internal controls can’t totally prevent theft. But it seems that some folks are most honest if they know they’re being watched. A South American prison tried using a dummy guard in a watch tower to save costs.  Surprisingly, two prisoners escaped.

Detection of embezzlement is good, and CPAs eventually catch most schemes. But detection occurs once the damage is done and recovery is problematic. Criminal charges won’t replace Wilmington NC Widget’s cash. But promoting detection is a form of prevention.

Let the staff know due diligence is being performed. Without creating a hostile environment. We actually think of this as protecting your employees and promote it that way. Sometimes this can just be the CPA coming in monthly to perform a spot check of vital processes.

Lead by Example

Even genuinely good human beings get embezzled from.  We’ve seen even the nicest of folks get walked all over.  But we think immoral leadership engenders immoral conduct in employees. Now, the CPA may not know the owner of Wilmington, NC Widgets is skimming cash, but the bookkeeper sure does. Maybe that makes it OK for her to run a false vendor cash diversion scheme.  Say the owner gouges customers on prices or uses substandard components in their products!  How unAmerican!  This could slip by the CPA, but the AP/AR tech knows.  So maybe sending “refunds” to her relatives seems somehow OK. Now, say the owner of Wilmington, NC Widgets harasses the female office staff. This might lead to one of these ladies thinking its OK to use the WNW credit card at Belk’s.  We’ve heard a new pair of (expensive) shoes can fix just about anything.

Let Employees Know the Police will be Involved

Usually, embezzlement goes unreported to the police even when detected. The fear of punishment is a deterrent for some folks. Explain in the employee manuals that once caught, subsequent events are left to the authorities and criminal charges will be pursued.

Remember due diligence involves your medical accounting having internal controls in place that are consistently applied. These haven’t been addressed directly here. If your CPA hasn’t set these in place, ask why.

What has your CPA done for you lately?

Please fee free to call us for a free initial consult on any CPA or accounting issue at (910) 399-2705.

6 comments to Subtle Aspects of Embezzlement and Misappropriation Prevention

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