How to Catch Someone Embezzling from Your Business

No matter how a smart business owner you think you are, you are at risk of losing money to an embezzler – this person could be a trusted employee, family member or even your bookkeeper. As long as you own a business, you are not immune to embezzlement. Do not assume that your employees will not steal from you.

Almost daily I hear stories about how employees managed to steal company funds without getting noticed. It’s common in almost all businesses, 77% of all business fraud is committed by employees, there are employees embezzling funds without a single suspicion. Utilizing professional grade accounting software such as Quickbooks Online can help you catch someone who is embezzling from you. This system has the ability to limit employee access while allowing you, the business owner, the capacity to monitor all employee activity in your finances.

It’s true that even though it seems like embezzlers are always getting caught, many employees still embezzle assets from a business and end up without getting caught for years, draining small businesses of needed profits fraudulently.

I highly advise you to get vigilant before you lose your assets. Luckily in this article, you will learn how embezzlers operate in your business, how to catch an embezzler, and how to prevent future employee theft.

Before we get started, it’s important that we understand what embezzlement is. Simply put, embezzlement is a type of fraud that employees commit by abusing a position of trust or access to steal from their employers. Think of it as a fancy way to say insider stealing, as opposed to shoplifting which is theft from non-employees.

As a matter of fact, the smart embezzlers are usually very active in a company and are often sadly your most dedicated employees. They can embezzle funds from a company for a long time without getting caught because of their valued contribution to your firm.

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6 Most Common Embezzlement Schemes

Here are some effective ways to spot the red flags that could indicate that an embezzlement scheme is looting your company.   

1- Undercharging

This is one of the most common ways of embezzlement. If you run a retail firm, its good you keep an eye on your record books on a daily basis. Cashiers in retail firms will undercharge friends and families for your merchandise effectively stealing your profits for their gain.

2 – Ghost Supplier

A fraudulent employee may set up a ghost supplier and create fake documents showing legit transactions with this fake business. He or she will make payments to the ghost supplier (that is himself/herself) then spend your hard-earned money however they choose to spend it.

3 – Fake Refunds

A fake refund is a refund that is issued to a customer who does not exist. The fraud employer will issue this refund only to get the money for themselves. E-commerce businesses often suffer from this type of theft.

4 – Stealing Office Supplies

A fraudulent employee will use the company’s postage stamps, equipment, and supplies for their personal reasons without getting noticed. They will even make long distance phone calls and charge the personal bill to the company.

5 – Fictitious Bad Debt

A sneaky accountant or bookkeeping will deposit a customer’s cheque in his or her bank account and record the receivable as a bad debt. Then they pretend that the customer never paid their bill and thus the debt had to be written off, meanwhile the thief is happily spending your cash.

6 – Payroll Fraud

An enterprise embezzler can sometimes add fictitious employees, often their relatives, to your company payroll and send them regular fake paychecks to themselves.

Now that we have established some of the nefarious ways that an embezzler can steal assets from your company, let’s look at some of the warning signs of an embezzler.

Warning Signs Someone is Embezzling From Your Company

As a company owner, you must be continuously aware of all activities taking place in your company. If you are not, then chances are you are already losing your property to some embezzlers. Look out for these warning signs of embezzlement:

  • An employee who does not want to go on vacation. Such an employee is usually trying to protect his or her sneaky ways of embezzling your property. They simply don’t want their replacement to detect their activities.
  • An employee who is more than willing to work overtime all the time. It is during the overtime, when managers are off duty,  that they complete their fraudulent activities. These people appear to be working extra hard as an act of generosity just so that you not suspect them of embezzlement.
  • An employee who starts to spend extravagantly. If your employee starts living a rich lifestyle, such as fancy new cards and exotic travel, that is way above their pay grade, then it’s time for you to take a closer look at your accounts and assets for signs of embezzlement. He or she could be selling your property or have found a way to spend your money under your nose.  
  • An employee with access to petty cash. If you realize that your petty cash is getting spent more quickly than it should, then there is usually someone stealing it.
  • An employee who are always spending lots of time with your vendors. If you realize that there is an employee spending a lot of time with your vendors, they could be running a scheme with those vendors that are draining your company’s cash flow.
  • An employee with responsibility for buying office supplies. If you notice disappearing office items and you are always buying new office equipment, there could be an employee who is taking your office items home for their own home-based business.

Once you notice any of the above red flags, you will be in a better position to carry out your investigations as detailed below.

How to Prevent Employee Embezzlement Theft

For you to prevent employee theft, you must be familiar with most of the ways that an embezzler will use to steal from you. Here is a list of the best preventive measures that you can take to avoid embezzlement from your small business

  1. Deposit on a daily basis. Money sitting around in your office can be very tempting for some of your employees. Deposit any money that is not in immediate use into the bank and keep a tab of all your bank statements on a monthly basis.
  2. Divide financial duties. Do not assign all financial tasks to one employee. Divide the financial tasks to several employees to spread out your risk. If one decides to start stealing, you will easily spot it from their records to know which employee is the thief.
  3. Track your petty cash. Ensure that the petty cash in your company is well utilized by keeping a log of how the money is being spent. Also, make sure that two or more employees must sign before refilling the petty cash drawer.
  4. Manage by walking around your premises regularly. When you walk around keeping an eye on how things are running in your business, employees will know that you are always watching them. Don’t get into their personal privacy. Just be observe from a distance, especially on off hours which when most theft occurs.

These preventive measures are general to all companies. Analyze your particular business operations from all angles and think like an embezzler, what ways could they use to embezzle your property?

Communicate that employee honesty is paramount from day one with all new hires. Ensure that all your employees know that you require them to be honest. New employees will easily forget what you tell them. The best thing to do is create policies and procedure manual that they must sign as a condition of employment.

Before you lose money from your company through embezzlement, you should talk to an employment attorney. This type of attorney knows all your local employment laws and how expertly handle and prosecute cases of embezzlement.

Ensure that your attorney informs you of your employment rights and how to properly deal with any suspected or actual embezzlement in your company. Then if you suspect that an employee is embezzling from your company you call your attorney for their legal advice on how to handle the embezzling staff member.

You will be in a better position to handle embezzlement cases in your company if you are aware of the necessary steps to take once you catch an embezzler.

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