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Client Alert - Summer 2008

How to protect your business from employee theft

An adequate system of checks and balances in your business's accounting procedures will not only help to prevent employee theft, but will also avoid costly errors.

For example, if you authorize one employee to have access to blank checks and another to sign checks, two people must agree that the money is actually due. Another method is to have all checks signed by two employees. Either procedure will help prevent a dishonest employee from writing company checks for personal expenses.

One of the easiest ways for an employee to steal from a business is to take cash and falsify the sales records.

Proper controls require that the person who has physical control of an item (bank deposits, accounts receivable, accounts payable) should not make bookkeeping entries in connection with that item. Even in a very small business, a sufficient control system is usually possible with proper work assignments.

Small embezzlements are seldom prosecuted. It is usually a crime without witnesses. Proof of guilt is nearly impossible if the records are inadequate. Some people who embezzle from small businesses are aware that they have little to fear because prosecution is unlikely.

Various types of insurance against losses from employee theft are available. If an employee circumvents the control system, insurance may help reduce the loss.

Preventing losses from employee theft requires a system of controls based on expert accounting advice, careful screening of new employees, and adequate insurance protection.

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