Return to Articles List
Reprinted From: Delaware Business Review
Written By: Frank R. Sidlow, CPA
It's estimated that 25 percent of all businesses fall victim to embezzlement at some time. Much of this can be prevented by carefully screening applicants for hiring and implementing simple controls. Even a small business owner cannot afford to ignore the basic concept of internal controls.

When internal controls don’t exist, temptation arises. The dishonest employee senses that no one seems to care and takes this as an open invitation.

In designing and monitoring an internal control system, explain to all employees how stealing can destroy profitability and thereby endanger everyone's job. Make certain that the rules are applied even handedly and that no one individual is being singled out for suspicion.

An internal control system should establish guidelines for the recording, processing and reporting of financial data. Proper internal controls and segregation of duties should be designed to make it as difficult as possible to circumvent the system.

This system should be examined annually or at the very least, whenever key people within the company are replaced. The frequency of these evaluations makes it more difficult for employees to commit or cover up fraud.

An internal control system should include the following guidelines: thorough screening and background checks of prospective employees, require that all employees handling cash be bonded, make employees aware that all accounting work will be reviewed, don’t allow employees to sign checks, don’t sign a blank check, the same person should not write checks and receive bank statements, periodically review and reconcile all accounts, have statements regularly prepared and reviewed by a certified public accountant, periodically rotate accounting duties, be suspicious of an accounting employee who works overtime frequently and doesn't take vacations, use an accounting system that provides an audit trail.

Another important way for business owners to avoid an act of embezzlement is to set an example of honesty. Employees may mirror upper management's attitude and think it's not so bad since the company's executives take advantage of the system, too.

If fraud might be an issue at the company, don’t hesitate to investigate. When in doubt, have an audit performed and your internal control systems evaluated and tested by your independent certified public accounting firm.