Are Employees Stealing From You?

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Are Employees Stealing From You?
Part of a trustee's job is to ensure that sound business practices are in place. Employee fraud occurs all the time. Here's how to prevent it.

You have spent a year as a trustee of St. Etheldreda's. You have attended all the meetings. Recently you were appointed to the finance committee. The nagging question keeps chewing at you. "How do we know that our employees aren't stealing from us?" After all, hardly a day goes by without yet another report of some trusted employee stealing from one organization or another.

You simply have to ask these tough questions of your business manager and your auditor.

1.   Does one person have control over all of your accounting functions?
2.   Are two signatures required on checks over a pre-determined amount - say, $500?
3.   Are checks ever pre-signed?
4.   Are your bank accounts consolidated so that your bookkeeping accurately reflects the school's true financial position?
5.   Is there petty cash lying around?
6.   Are different people assigned to the deposit and account reconciliation functions?
7.   Do you have a purchase order system?
8.   Does your committee review expenses and supporting vouchers carefully and frequently?
9.   Does an outside auditor review your books annually?
10. Do you run background checks and speak to references before you hire?
Insist that your school be run like a business
Some schools find it difficult to implement standard business practices. Even when they do, they can find it even more difficult to stick to those practices. Be careful of the trusted old employee who's been there forever and resists your updated business procedures. Reassigning him or her to some other function and bringing in some new blood is probably a good idea. Off the shelf accounting software such as QuickBooks makes short work of financial reporting and day-to-day management.
Be watchful!
Part of your fiduciary responsibility as a trustee is to observe. Ask lots of questions. Insist on answers. People are less likely to steal if they know they are being watched.

Require an annual audit

Smaller schools may want to avoid the expense of an audit. Audits cost money. But they are worth it for several reasons. First of all, an audit will give you peace of mind knowing that the finances have been reviewed by an accounting professional. Secondly, most serious donors will want to know that their gift is going to an organization which is properly administered. Serious donors tend to avoid bad investments. Thirdly, an audit can identify trends both good and bad and suggest corrective action. Do not let the board skip the annual audit.
What the experts suggest
Tips from Xero

“Don’t let one employee do all the accounting and bookkeeping”

Because of their size, many small businesses have one person that always handles bookkeeping functions like:

  • client receivables
  • processing client payments
  • paying invoices
  • managing petty cash
  • recording functions in the accounting system

This makes it easy for cases of fraud to go unnoticed. Businesses should have at least two people handling these functions – with accounting and cash-handling separated.

Tips from Bento Technologies

Bento Technologies suggests that you automate bill payments.

Small business accountant Thomas J. Williams recommends putting bills on autopay is an effective way to prevent fraud.

“Do not let employees have access to checks,” he recommends. “Use the bill-pay feature on your business bank account to send your payments automatically.” Further, make sure that the person who pays the bills is also the person who opens the mail. This eliminates a huge opportunity for fraud.

There are also several QuickBooks apps that help automate payment tasks. And if you’re ready to take security a step further, consider going completely paperless.

Article in Inc.

Conduct surprise audits.

Catching an employee off guard could be your best bet in discovering fraud. "The key is that an employee generally doesn't know what's coming and won't have the time to change the records to hide the fraud," says John Gill. Additionally, auditors have sampling and computer data analysis techniques that help uncover fraud. Using these techniques, auditors can quickly examine, say, the payment of 1,000 invoices in detail, including invoice numbers, to whom payments were made, and when payments were made, and quickly determine those that are suspicious. "We've seen cases where somebody creates a phony company, submits invoices to accounting and accounting sends payment to a P.O. Box," says Gill. In one case, Gill recalls, an employee who set up a fraudulent business through which he submitted preprinted, consecutive numbered invoices to his employer every few months. When the auditors examined the invoices, particularly the invoice numbers, it seemed funny to them that the business submitting the invoices didn't have other clients or was having an extremely slow year since each consecutive invoice was sent to the company. A surprise audit also can uncover duplicate invoice amounts and duplicate invoice numbers, both of which can be red flags for possible wrongdoing.

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