Cleaning Company Embezzlement: It Can Happen to You

When you hear the word embezzlement, you may think it's a crime reserved for the likes of Fortune 500 companies. The truth is, however, misappropriation of company funds by an employee is far more likely to happen at your cleaning company than at IBM.

According to a 2016 HISCOX survey, 80 percent of embezzlements occurred at small businesses (those with less than 150 employees), and 30 percent involved a loss of more than $500,000. Also, employee theft is responsible for one out of every three small business closings.

Embezzlement isn't just for large companies

We've seen the impact of embezzlement up close. A cleaning company in our city suffered a huge financial loss after some “creative bookkeeping.” The business owner didn't want to deal with the company's financials, so he handed everything over to his bookkeeper.

A few years into this relationship, the BSC found some troubling discrepancies. He estimates his business lost more than $200,000 to embezzlement. Without internal controls, the owner had no idea his trusted bookkeeper had been stealing from him for years.

Let this frightening story be a wake-up call. There is no better time than the present to protect your company against embezzlement. Use these three strategies to guard against devastating losses.

1. Check Financial Records

Without doubt, the most effective way to protect your company from embezzlement is to know your company's numbers. Very often, an owner isn't the company's primary bookkeeper. Even if don't handle the day-to-day finances, however, it's imperative that you remain involved.

Most cases of embezzlement span over a number of years, so early intervention is key to minimizing the damage to your business.

One of the easiest ways to embezzle money is to create a fake client or vendor to cover personal withdrawals. Another common tactic is to overpay an invoice, then pocket the refund.

Conduct regular reviews of all statements to look for unfamiliar amounts or unexpected charges. Also, look over client and vendor agreements as well to compare them with your financial records. Compare the numbers you see in the ledger against the numbers listed on invoices and client contracts. Don't be afraid to ask questions. An honest bookkeeper won't be threatened by your interest in your company's financial well-being.

Finally, many experts recommend that companies have their records checked annually by an independent, third-party auditor. This audit allows you to catch any small mistakes and points out any warning signs of something more malicious.

2. Monitor Employee Behavior

Business owners don't want believe the worst of their key staff, but the majority of employee theft is committed by long-term employees. Although trust is an important part of the employer-employee relationship, you can't afford to run your business without any supervision.

Business owners who take an active interest in the day-to-day activities of their staff are more likely to see and correct small issues before they mushroom into extremely costly problems. You don't need to micromanage your workers, but you should routinely conduct site visits to ensure employees are following procedures and policies.

Likewise, you should remain engaged with your staff enough to notice extreme behavior changes. Warning signs of employee theft can be subtle, but there are red flags to watch for.

An employee who suddenly seems more invested in their work may not be dedicated and driven. Instead, they may be learning about the company's financial practices and looking for vulnerabilities to exploit.

Employees who suddenly begins making personal purchases they shouldn't be able to afford on their salary could also be problematic. There might be innocent reasons for the influx of cash, but it's worth asking a few questions.

It's also important to be mindful about staff who have company credit cards or who use company vehicles and get a company fuel card. To ensure these cards are used properly, require employees to turn in all receipts. This makes it more difficult for an employee to use company funds for personal expenses.

3. Divide Responsibilities

Even without the threat of misconduct, cross-training is important to ensure business goes on as usual even when a staff member is absent for a prolonged period. Cross-training can also prevent embezzlement because thieves prefer to steal when no one is watching.

When a task like inventory or invoicing is performed by more than one employee, more errors—both malicious and accidental—are caught. If one employee is solely responsible for something like invoicing, however, it's much easier for small amounts of money to be diverted without notice.

Similarly, a system of checks and balances can stop thieves in their tracks. This means dividing tasks among employees so no one person has too much power. As an example, the staff member who signs outgoing checks should be different from one who creates invoices or purchase orders. Separating these duties makes embezzling more difficult.

If necessary in a smaller company, duties can be split between the owner and an employee. In these cases, it's a good practice to have the owner as the only authorized signatory. This will take a bit more time on the owner's part, but it gives affords him the opportunity to monitor the money leaving the business.

In conjunction with regular review of your financial records, these practices can make embezzling from your business very difficult.

 In Case of Theft

If you suspect that someone on your team is embezzling money, start an investigation immediately. If you find evidence of embezzlement or theft, contact local law enforcement.

To have any chance of getting the embezzled money returned, you'll need documentation that proves misconduct from the employee. This includes estimates of the amount stolen and of when the embezzlement began. Once you have solid evidence of theft, revoke the staff member's access to your accounts and information when you end their employment.

Until you have solid proof, however, don't accuse anyone of anything. Unfounded accusations can put you at risk of a hefty lawsuit, plus it will ruin your relationship with an innocent employee.

Embezzlement is a serious problem that affects a large number of small businesses, including commercial cleaning companies. Avoid this worst-case scenario by taking steps now to protect your books from fraud.

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