Jeb Molony

Below is a reprint of an article by Joyce Rosenberg of the Associated Press.  The article talks about employee theft and preventing employee theft when bookkeeping is involved.  Bookkeeping services are a great way to prevent employees from becoming entrenched and controlling the flow of information.  The e-vos bookkeeping service takes the idea a step further by allowing business owners to outsource their bookkeeping services completely in order to shift the risk of theft from the business owner to e-vos.

NEW YORK — It often starts with a trusted employee. Invoices might be forged, or checks might be stolen. By the time the boss catches on, thousands of dollars have been stolen.

Employee theft or fraud is a big and expensive problem at many small companies. But the pain is often more than monetary. A boss feels a sense of betrayal, anger and shame.

A look at the problem, and steps a business can take to try to prevent it:

–Who does it? Lawyers who handle employee theft cases say workers who steal from their companies are usually not the recent hires. The thief tends to be "the long-term trusted employee who's never had any evidence of (prison) time on their record," said John Palter, an employment attorney with Riney Palter in Dallas.

"Generally, it takes someone with a high level of access to the various accounting systems and a high level of trust from management to be able to perpetrate the fraud," Palter said. Consider that the thief might be a bookkeeper or controller.

–How? Attorneys say there are several methods that employees tend to use when they steal.

A common one is for an employee to create a fictitious vendor who is paid for goods never received or services never performed. The employee creates an invoice and a check is cut to pay the nonexistent vendor. The employee cashes the check.

Another method involves an agreement between the employee and an actual vendor. The vendor agrees to mark up the price charged the company, and after being paid turns over the extra money to the employee. In return for this kickback, the employee promises the vendor that the company will keep doing business with him or her.

An employee might also open an account with the same name as the company, take customer checks and deposit them in that account. The company's books are then adjusted so there's no record of the customer transaction.

Hubert Klein, a certified public accountant in Hackensack, N.J., said he usually sees cases of theft at a company where only one person does several jobs under little or no supervision.

"That may be deemed to be weak internal controls," Klein said, but added that many small businesses are forced by economics to have one person doing all those tasks.

–Preventive measures: No one individual should be exclusively responsible for the accounting, Palter said.

Employees should also be required to regularly take vacation time as "a way of ensuring that there are other sets of eyes reviewing the paperwork," Palter said.

You also need to have an accountant audit the books at least once a year. An audit will not only uncover a theft, it will also let employees know they could be caught.

Employers should also let staffers know, through a clearly defined and written policy, that there will be consequences if someone is caught stealing from the company.

If a theft does occur, it's a good idea if employees know that you're prepared to have it thoroughly investigated by accountants and information technology experts.

–ID theft adds wrinkle: Reports that disgruntled employees have stolen co-workers' personal information are becoming more frequent. Palter suggested small businesses bring in information technology specialists who can help create secure computer systems that limit employees' access to sensitive information. He said a company also needs to make it harder for an identity thief to copy and remove files.

–How to react? When you discover money, inventory or equipment is missing, and you suspect a particular employee, do not immediately confront him or her. Both Palter and Hubert warned that accusing someone who turns out to be innocent could make the company liable to a big judgment for defamation.

You should consult a lawyer and an accountant. The lawyer will tell you when it's time to take the case to the police. An accountant can arrange for forensic specialists to go through your books and try to determine who had access to them and who likely committed the crime.