Embezzlement happens when companies fail to have adequate internal controls in place in their businesses. Internal controls are things like requiring two signatures on checks or separating financial duties among multiple employees.
What is embezzlement?
The definition of embezzlement, according to Dictionary.com, is, “The stealing of money entrusted to one’s care.” That means embezzlers have permission to handle property or money – but not take it. Embezzlement is a huge problem for small businesses. 7 out of 10 small businesses in the U.S. that experience employee theft have fewer than 100 employees. As of 2016, the US Census Bureau reported that 5.6 million small businesses employed people. 98.2% of those companies employed fewer than 100 people. That’s approximately 5,499,200 small businesses that are at risk of experiencing employee theft. If you have been embezzled from or suspect you’re being embezzled from, you’re not alone.
How to spot embezzlement
In the 2018 HISCOX embezzlement study, they examined some of the most common techniques used by employees stealing from companies. Here’s what they found out about how embezzlement happens:
Billing fraud accounts for 18% of embezzlement. Billing fraud includes inaccurately reporting spending, creating fake vendors, and overstating either the quantity or amount of payments made.
Cash on hand theft accounts for 15% of embezzlement. Cash on hand is what the business keeps for day to day operations. Such as petty cash. Because cash on hand is less likely to be monitored or protected, it’s relatively easy for employees to steal cash on hand.
Theft and larceny accounts for 11% of embezzlement. Theft and larceny includes stealing company property or personal property from the business owners or other employees.
Check and payment tampering accounts for 10% of embezzlement. Employees who write company checks to their personal accounts, divert payments made to the company to their personal accounts, and writing company checks to fake vendors and depositing them in their personal accounts are tampering with checks and payments.
Payroll tampering accounts for 10% of embezzlement. This includes inaccurately recording payroll, creating fake employees, and otherwise using payroll to deposit unearned funds into personal accounts.
Skimming credit cards accounts for 9% of embezzlement. Skimming credit cards is a process where a skimmer is used to transfer credit card information so a company card can be used for personal spending.
Cash larceny accounts for 9% of embezzlement. Cash larceny happens when employees steal cash collected from customers or steal tip money.
Why does embezzlement happen?
Embezzlement happens when companies fail to have adequate internal controls in place in their businesses. Internal controls are things like requiring two signatures on checks or separating financial duties among multiple employees.
The HISCOX study also found that 85% of embezzlers were managers or C-suite executives. In other words, people who are typically given a lot of trust when it comes to a company’s money. And in small businesses, there typically isn’t a lot of oversight over managers, C-suite executives, and other people given control over the company’s cash flow.
At Bookkeeping Unlimited, we’ve seen all sorts of cases involving embezzlement. We have helped companies find the evidence to prosecute embezzlers, helped companies go through and adjust their finances for accuracy after an embezzler is caught, helped companies fix their IRS reporting and taxes, and helped companies implement internal controls to prevent future embezzlement.
How to fix your finances after being embezzled from
After finding embezzlement in your business, you may need to conduct a forensic audit of your finances. And you may have to go back a number of years. This is a time-intensive job that requires expertise.
We’ve been helping businesses fix their finances after being embezzled from for decades. Before we do anything else, we sit down with you to review your finances and determine what your books should look like when they’re done accurately. Then we do a deep dive into your books and finances.
Once we conduct our forensic audit, we work with you on making your books accurate. And we work with the IRS and other financial institutions to fix any outstanding issues you may have.
Some businesses repair their books, fix their tax problems, and think that’s it. That their embezzlement problems are over. However, if you don’t change any of your internal processes, you’re at risk for being embezzled from again.
One reason we imbue all of our bookkeeping services with internal controls, processes, and sound compliance practices is to protect our clients from embezzlement. Having these steps in place can literally save your business from being wiped out by an embezzler (or a team of embezzlers).
Take control of your finances with our help
Every business owner should have total control over your finances. That’s why we recommend businesses outsource their bookkeeping to our team of experts. With our custom digital bookkeeping solutions, we give business owners complete control. You will see every penny in every account, be able to manage your cash flow, and have processes in place so you know what is happening with your money 24/7.
With our help, you can get your company back on track and move forward with confidence. You’ll be able to keep growing your business knowing you have a team of experienced professionals protecting your finances from embezzlement.
At Bookkeeping Unlimited, we provide full-spectrum outsourced bookkeeping services to small businesses. We believe in small businesses and small business owners. Find out how we can help you take your business to the next level. When you schedule your FREE consultation, you’ll also receive a comprehensive review of your books. Get bookkeeping that works for you today.
