Protecting Your Business Against Employee Fraud
Created by FindLaw's team of legal writers and editors | Last reviewed September 26, 2022
Employee theft (embezzlement) is surprisingly common and can devastate your business. It can happen as easily as a cashier keeping money and never entering it into the register or as complicated as the Bernie Madoff Ponzi scheme that rocked Wall Street.
As an employer, there are several things you can do to safeguard your situation. Always run a background and drug test on potential employees. If there is something in the person's criminal history that causes you concern, speak with a lawyer before hiring the individual. You may also wish to keep a video surveillance system in employee areas such as storerooms or anywhere cash might be handled. Consequently, it is worthwhile to put an anti-theft program into place, which includes internal auditing and monitoring.
Jumping the Gun
Never jump the gun by accusing an employee of theft unless you have concrete evidence. Be sure to conduct an investigation and be ready to speak with a lawyer and law enforcement. Gather as much evidence as you can including eye witness statements, records, video or audio recordings or any other evidence that may be available. Falsely accusing an employee could result in your business being sued by the employee for defamation or more. You might have to pay compensatory and punitive damages if the court finds you in the wrong, so always proceed with caution.
By following a few Do's and Don'ts you can minimize the risk of employee fraud.
- DO regularly review your financial statements.
- DO deposit your cash and checks daily.
- DO secure your blank checks and signature stamps.
- DO carefully monitor a new employee who is responsible for buying goods.
- DO periodically have an individual hand out payroll checks and confirm that absent employees are actual employees.
- DO periodically compare payroll payees with employee records.
- DO regularly review bank reconciliations.
- DO distribute responsibilities among employees so that a different employee collects receipts, makes out deposit slips, reviews bank statements and writes checks.
- DO periodically open your own mail and compare payments received with deposits.
- DO periodically hire an outside accountant to audit your books.
- DO require two signatures on checks over a certain amount.
- DO review billing error complaints from customers.
- DO require that original invoices be kept in the files.
- DO maintain and monitor a list of your property that is subject to theft.
- DON'T allow accounting personnel to work longer than a year without taking a vacation.
- DON'T sign blank checks.
- DON'T hire employees without checking references.
- DON'T sign checks for new vendors without verifying their name and association with your company.
- DON'T allow transfers between accounts without verification.
- DON'T sign checks without reviewing and canceling paid invoices.
Speak with a Lawyer Before Proceeding
Accusing an employee of fraud is a very serious matter and should only be done after having conducting a through investigation and seeking the advice of an attorney. A trusted business and commercial law attorney can provide you with the information and laws you need to help you uncover fraud, if it exists.
You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help
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