Ingredients of Embezzlement

No background checks
Trust – little to no oversight
Duties are not segregated
No Audits
No system for cross checking invoices against purchase orders
No verification of new accounts

Contractor hired employee without a background check to handle all payable and receivable accounts, writing checks, controlling bank deposits, and providing expense and sales reports.

After 13 years of employment the employee left a note “good luck” and quit! Within a couple months the owner had discovered that the trusted employee who was considered part of the family had embezzled $250,000 and could be as high as $900,000. His method of choice writing checks to himself and forging owner’s signature.

Had the owner done a background check he would have seen that his applicant had spent 2 years in prison for embezzlement.

Unfortunately, I hear from my clients stories like this several times a year. In fact, embezzlement continues to be the most frequent claim I see every year outside of auto accidents. The methods are varied but all of the cases had one or more of the ingredients listed above.

Don’t be the business owner that ends up saying “I trusted them”

Consider implementing all or most of these policies & procedures regardless of how much you trust your team!

Vetting employees that have any bookkeeping duties. This should include a background check.
Control who has access to money, securities, and other property.
Implement audit procedures
Internal Controls
- Two signatures on all out going checks
- Reconciliation of bank records is a segregated duty not to be done by anyone who has check signing, deposit, or withdrawal authority.
System for cross-checking invoices against purchase orders
Verify accounts (e.g. vendors, suppliers and clients)

Some property policies include a small amount for employee dishonesty claims. I highly recommend that you review your limits and explore increasing the limit. If your business handles client money then you will want to be sure your coverage includes client money and securities.

One of the toughest things to do is prosecute, but you must! Otherwise they just go to the next employer, build trust, and start the process all over again!

To learn more, contact any of us at Propel.

Kris Lawrence

With 32 years in the industry, Kris is an experienced insurance partner who understands the full spectrum of personal and business coverage and provides ‘concierge level’ service to optimize protection of her clients’ personal and professional assets.

Kris and her team also provide broker and risk management services to municipalities, public and private schools, and the non-profit sector. This includes on site training, contract review and claims administration helping administrators reduce their exposure and lower costs.
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