Misappropriation of Funds: Are You Liable for Employee Theft?

Ravix Group has helped clients clean up the mess left behind by employee theft in Silicon Valley. With our assistance, you can prevent employee theft and lack of managerial controls. Management cannot allow lower-paid employees to have incongruous access to company funds, tempting fate and inviting dishonest activity. You can blame the economy, or fault human greed, but it really only matters that it’s happening, and that it might happen to you.

Here are a few statistics to consider:

• Up to 40% of employees caught stealing had red flags in their files.
• Insurance, healthcare, and finance are the main industries impacted by employee theft.
• Up to 46% of businesses report fraud or other economic crimes within 24 hours, according to a recent survey.

We’re not talking about taking a couple PostIts from the supply closet; we’re talking big bucks here. Employers are easy targets. Employees know the controls implemented and how the system works, and therefore know how to cheat it. Oftentimes, employees are granted inappropriate access to company finances and are not monitored properly, leading to deceitful activity.

The best HR outsourcing companies can help you draft policies to deal with employees caught stealing from the company. At Ravix Group, we also have fractional CFOs and outsourced controllers who can put a stop to lenient security that enables employees to thin out your bottom line via the misappropriation of funds.

Real Life Examples: Let Us Help You Avoid These Scenarios

Why should you outsource accounting for your business? Most people think employee theft won’t happen at their company, but, think again!

Here are some real-life examples from our clients:

1. One company appointed the Office Manager as the Human Resources Manager with no oversight. She added a phantom employee to the payroll, falsified payroll records, and kept the money from the extra payroll. Only when our firm came in and reviewed the payroll records in correlation to the books was it clear that duplicity was occurring. The Office Manager was immediately fired and prosecuted.
2. Another company switched CEOs in the midst of trying to secure Series B funding. While the new CEO was distracted trying to save money and keep the company afloat, the Office Manager held on to the former CEO’s credit card and used it to run up $20,000 worth of personal supplies. She too was dismissed and prosecuted.
3. Another company had an Office Manager who was ordering personal items during supply orders and hiding the receipts. Nobody ever followed up and she got away with “losing” receipts continuously as company management felt that collecting receipts was unnecessary. Through reconciling the accounts, it was clear that something was amiss, and the fraudulence led right back to her. Termination and legal action soon followed.
4. An Office Manager was using the company credit card to pay for all her living expenses and any other incidentals she felt entitled to. When she was finally found out, she was then arrested at the airport leaving for a trip to Vegas, paid for by the company credit card, of course.

When internal financial leaders are overwhelmed, hiring experienced fractional CFOs or outsourced controllers can help you avoid this kind of oversight. We also provide senior level human resources consulting in San Francisco to help your company avoid the fraudulent activity we’ve seen at various companies.

How to Avoid Misappropriation of Funds with Fractional Accounting Services

Many CEOs think it’s a waste to spend money on “checks and balances.” This is a common misconception that can cost the company everything. With the necessary and appropriate staff, controls, and systems in place, employee theft can be prevented, or at least caught in a timely manner.

If you make it simple for someone to steal, they will. That’s why we recommend fractional accounting services to help you set up the following precautions:

• Annual audits. Have an accounting firm come in and look at your books yearly. This is a huge hassle. The auditors will continually ask you for documents and records so your files need to be in perfect shape,but it’s a necessary evil.
• Bank accounts and petty cash reconciled by an employee not authorized to deposit or withdraw funds. This way, there’s no “creative” math involved. An objective accountant with no access to money will simply do the math and see the errors.
• Make consequences clear. No one wants to be the bad guy, but if employees know that they will be prosecuted for theft, they won’t want to risk it. The average prison sentence for embezzlement is around four years, so let that fact sink into their heads a little bit. Make it clear that employees will be prosecuted if caught stealing.
• All checks should be countersigned and supported by concrete documentation. Checks should always be approved by a designated member of management and only if there is appropriate backup provided.
• Receipts, receipts, receipts! Don’t just take the receipts and stuff them in a drawer. Look at the receipts and see what was actually purchased. Was there anything extraneous? Does anything look abnormal? Don’t be afraid to ask questions.
• Background and reference checks of employees before they start. Oftentimes, employers skip this important step and unwittingly hire a criminal. While not all people with criminal pasts are going to repeat their actions, many of them will. (A new law, AB 22, states that in addition to the pre-existing law about utilizing credit checks during background checks, the employer needs to provide written notice to the candidate that a credit report will be used. Also, in addition, the notice shall identify the specific approved basis under the new law under which the credit report is run.)
• Proper oversight. Sadly, the lower paid employees are most often the ones that are stealing money. You must properly monitor employees and provide a sense of supervision.

How To Establish Checks without Losing Trust

This article isn’t supposed to make you suspicious of your employees; it is simply a warning against allowing personnel to have unsuitable access to company funds. It is never ill spent money to make sure that your finances are protected and intact, so when you’re really trying to save money, think twice about letting employees handle company money without proper supervision.

Are you ready to set up controls that alert you to employee theft? Ravix Group provides discreet, professional accounting and human resources consulting in San Francisco. Let us help you set up workflows that prevent your company from becoming a cautionary tale. Contact us online or call us at 408 216 0656 today to set up an appointment.