Uncovering Employee Embezzling & Internal Theft
Discovering that someone you hired is embezzling - or flat out stealing- from your company can be frustrating. It is challenging for some business owners to trust someone else in the company to pay the bills, take inventory, or accept cash. If you’ve ever been the victim of employee fraud or theft, you know how devastating it feels when that trust is broken. Let's review the most frequent ways employees steal from the company that employs them, why they do it, how to spot internal theft, and what to do about it.
Common Internal Theft Scams
If you suspect internal theft, look for these signs.
Small, consistent (but inaccurate) transactions
An employee who is stealing money will not usually outwardly write themselves a check for $10,000. Typically, internal theft happens in small increments, within the $200 - $500 range. Once an employee gets away with stealing a few times, the occurrences become more frequent. The more consistent a thief is with an amount, the less likely a business owner will catch on, because it may appear as a regular monthly bill. Watch for small transactions that don't match up to a legitimate expense. When your books are being kept inaccurately, it will more than likely not be a large, glaring mistake. Review all financial transactions to verify legitimacy.
Authorizing fraudulent payments
An employee with the responsibility of authorizing payments may take advantage of the opportunity to steal from the business. They often start with small theft, by taking inventory or cash. Even if your bills are going to a third party for payment, the employee can authorize it. Here’s how the scam works: An employee submits a bill for payment, after it was already paid for in cash. The employee may even ask Accounts Receivable to pay the bill again. The person paying the bills sometimes works with a partner or a team to steal from the company. For example, if the vendor is a friend of the employee, that person can be an accomplice by cashing the check and paying the employee cash equivalent to the amount of the check.
Employees who are responsible for processing payroll have a unique opportunity to steal from the business. They can do this by cashing coworkers’ checks themselves, or by writing false checks and then cashing them.
Company credit card fraud
Company credit cards are meant to be used for the transactions of doing business, and sometimes someone other than the owner is responsible for using one. But, using a company credit card for personal expenses is a common way that employees steal from their employers. Adding personal items during a shopping trip for company approved items is another way that thieves steal by credit card, hoping to be undetected by their employer.
Cash Scams in Restaurants and Bars
Theft in restaurants and bars occurs in a variety of ways.
Voided Transactions and Pocketing the Cash
Sometimes after an employee rings something up at the register, they will realize, "Whoops! I made a mistake. I’ll void it." This is a commonly accepted practice, unless the employee voids a transaction and then puts the customer's money in their own pocket instead of the cash register drawer.
Ringing up the wrong item
When a bartender is serving his or her friends, it may be tempting for them to offer a discount. This looks like a transaction for beer at happy hour instead of the shots that were actually served. When running a sales tax audit, this type of activity will cause errors. The auditors will know that there are a lot of mistakes being made at the bar, and it flags the other departments.
TABC audits will also detect when inventory is being stolen from the bar. When a bartender serves whiskey and rings it up as beer, this causes major issues. As a business owner, you could be facing $22,000 in fines and tax.
Why Employees Steal from Their Employer
Although it is a crime, employees have their reasoning for why they steal from their employers. Here are some of the top reasons why those who were caught say that they did it:
"They owe me that"
The number one reason an employee says they steal is because he or she feels underpaid or unappreciated. They feel like they have earned the amount of money they took from the business.
When employees face expensive medical bills, they sometimes steal from their employer to cover the costs. One manager admitted to stealing more than two thousand dollars from her employer’s nightly deposit, because she was recently diagnosed with cancer and needed the money for medical bills.
Addictions and Expensive Habits
Addictions can be destructive to an individual in many ways. When the addict steals from their employer, business owners feel the effect financially. An employee of a non-profit organization took out a loan from the bank for $49,900 in the name of organization, without authorization, to gamble.
What can business owners do when they suspect employee embezzling or internal theft?
Owners have to be very careful in the way they handle the employees who they suspect are stealing from their business. Before you approach an employee, start monitoring finances closely. Review all transactions carefully, and look at the details. Hire a professional for an internal audit. Saying something to an employee that implies they are embezzling or stealing could lead to legal troubles for the owner. What you don't want an employee to say is, "They accused me of stealing and had no proof - that's defamation of my character."
Find out what experts in financial forensics look for when auditing financial records and uncovering cases of embezzlement and fraud.
Trust but verify! You have to be active, no matter how much you trust the staff. Don’t be an absent business owner, or you could face an audit with expensive results. Checking on what’s been approved and what’s gone through the bank account may take time, but it can save big bucks in fines. As a business owner, you may look at the account every day. But are you making the connection? Look at the details of every transaction and don't lose track of what’s going on. The numbers may make sense, but it doesn’t mean they are correct.
Have everything audited first, before you approach a staff member about fraud or embezzlement, because the employee has rights. Take the mindset that this is a miscalculation or that it’s been entered incorrectly, before you accuse them of a crime.
Prosecuting an Employee for Theft
If the company does it correctly, going through the process of prosecuting can stop an employee from embezzling. If this is the route you take as a business owner, there is no shame in that. With daily responsibilities, it is easy for owners to get so wrapped up in taking care of their business and customers that acts of fraud or internal theft are overlooked.
Here are a few things to be on the lookout for:
Watch the voids. Multiple or excessive voids in a day could be a sign of employee fraud.
Returns on credit cards. Excessive returns on credit cards, especially for the same customer, could be a fraud team in action.
Ringing up food or drinks on someone else's tab. Be especially attentive when customers claim they are paying for someone else's meals or drinks.
Excessive pay checks. Outsourcing your payroll for a more secure system is a defense against internal theft.
Need help? Call Paul's!
With years of experience in uncovering fraudulence and employee embezzling, the professional auditing team at Paul's Bookkeeping and Tax Service can examine your financial records to uncover stealing of all kinds. We can also handle all of your payroll needs to avoid employee access to financial information. Before it happens, get help to protect your business from internal theft. Call Paul’s today to schedule a consultation, 806-352-6085.