Reduce your risk of loss from a faithless worker, agent or third party by following these critical steps.
- Personally review your monthly bank statements immediately when they come in the mail (or online) to ensure all transactions are authorized. Be sure you are reviewing the documents from the bank, not a summary prepared by an employee or agent.
- Separate bank account responsibilities. Do not allow the same person who reconciles your statement to also issue checks on your account, and consider rotating duties on a regular/quarterly basis.
- Watch for out-of-sequence checks and checks made payable to cash that you didn’t cash or to a bank you don’t know about.
- Be sure ACH and other debit payments to vendors (for example, credit card companies, cell phone providers or utilities) are paying your bills or bills you want to pay, not the bill of an employee, agent or somebody else.
- Never leave unused checks in the open or in an easily accessible area. Store your checks under lock and key. Conduct periodic surprise audits of check control duties and physical check stock.
- Conduct a regular review of your transaction activity for unexpected fluctuations in the number of transactions or the dollar amounts.
- Notify the bank immediately when an employee who was authorized to sign on your account or had access to your bank records leaves your company and consider whether your account(s) should be changed.
- Conduct thorough background checks on employees who have financial responsibilities or access to financial documents.
- Determine whether your outside agents (attorney, CPA, bookkeeper or business manager) have adequate controls and insurance against employee/principal theft and fraud.
- Provide dual approvals on wire and ACH transactions. If that’s not possible, monitor your accounts regularly (and as often as daily) for these types of transactions.
Do not discount or ignore red flags. Work with your banker to select appropriate products and services and set appropriate limits and alerts.
Embezzling employees often start small to see if you are watching. When a first, small fraudulent transaction is not detected, the employee will gradually increase the frequency and amount of unauthorized items. If you aren’t watching your account, you may not be aware of the fraud until your account is overdrawn. If you fail to detect unauthorized items promptly, you are likely to bear the loss.