Employee theft and fraud can happen in any business, but often small businesses and startups are particularly vulnerable because they have not instituted the right checks and protections as a preventative measure. Unfortunately, embezzlement also hits smaller businesses harder because they often have less padding in their budgets and revenue streams.
It’s not suspicious, or an overreaction to put safeguards in place to protect you and your business from dishonest people. Chances are you want to think well of our employees — as well you should. But honest people won’t mind adhering to reasonable protective measures, because they will want to ensure the health of your business’ finances too. You should trust the people you work with, but you should also have systems in place that mean your financial policies don’t rely on your trust.
Here are some of the best practices to follow to ensure that your business is as safe as possible from theft and embezzlement. With any luck (and a robust set of policies running quietly in the background) you won’t even have to think about the possibility again!
Accept the Possibility
Unfortunately, betrayals do happen, even in the least likely of places. Probably you are right, and your bookker is honest, trustworthy, and has your best interests at heart. But the fact is, no one is immune, and not protecting yourself is just tempting fate. The trick is to establish rules that everyone, including yourself, must follow to the letter so that it is clear that no one is being personally targeted. You may also think about it as preparing now for the future when your business is larger and you don’t have a personal relationship with every new hire.
In order to have an office full of employees who follow the rules, you first need an office full of employees who know what the rules are. It may seem self-evident, but this is one subject where you don’t want to leave any grey area. It’s a good idea to draw up a comprehensive code of conduct that cover all manner of ethical expectations and outlines the appropriate response to various situations that may come up. Distribute copies to each employee and require that they read and acknowledge it. That way you know beyond a doubt that everyone is starting from the same page, and you will have all your bases covered if there is ever an infraction in the future.
Distribute the Responsibility
One easy way to protect yourself is to make sure that no one person controls too much of your finances, especially if they are acting without formalized oversight. It’s always a good idea to create a healthy separation of duties so that the same person isn’t handling payments, setting up vendors, writing checks, and distributing payroll. It simply makes it too easy for mistakes to go unnoticed, and that kind of responsibility can be a burden on even an honest, hardworking employee.
Let the Bank Keep your Records
A dishonest bookkeeper can easily fake entries and falsely balance the books, especially in small companies where they may even be a one person department. Luckily, there’s a great work-around to make sure that your records are completely accurate and impartial: your bank! Make it the default policy that every cent that comes into your company goes straight into your business checking account, and that every single expenditure comes out of that same checking account. That way, there is an automatic receipt for every dollar that passes through your hands, and no one in the company has the ability to tamper with or manipulate the bank’s recordkeeping.
Keep an Eye Out
Now that you have a comprehensive record of all your transactions, you’ll have to commit to checking it. Even a quick, 15 minute session every month to ensure that everything is as you would expect it to be and each deposit and withdrawal is legitimate can hugely increase your financial security. Look at credit card statements, bank statements, company payroll, and cancelled checks. If you stay on top of it, it won’t take long, and it will help you to catch and address any problems early on and before any real damage is done.
Get a Second Opinion
You’ll be keeping a watchful eye, but it never hurts to have another professional opinion. It’s good practice to have an unrelated, unbiased third party review your books and accounts every so often and perform a full audit, not only to catch any possible fraud but also to identify run of the mill human error and provide a clear-eyed picture of where your business stands financially. The cost is small when compared to the multi-layered benefits. You don’t even need to commit to this every quarter, just remind yourself to do so periodically. As long as you don’t simply forget, the unpredictable schedule can act as a powerful deterrent to anyone who may try to take advantage of your company.
The best thing about these tips is that while you are setting yourself up to be protected from would-be thieves, you are also employing general business best practices that will help guide your business to financial success in every sphere! Your business matters, and if you don’t look out for it no one else will. So take the time to do it right, and watch your business flourish!