Maybe it’s only human nature,
but all too often businesses stung by embezzlement
first blame their outside CPA instead of assessing
controls of their own that might have prevented
the theft in the first place. These suggestions
can help you teach small to midsize businesses and
nonprofit clients how to be more vigilant.
Conduct background checks on prospective
Many companies document internal
controls with spreadsheets. This process isn’t
very secure and can quickly become cumbersome. Put
the information underlying the documentation into
a database instead to enhance consistency,
security and search efficiency.
Thoroughly check references and
scrutinize all dates and time gaps in resumes.
Have employees bonded if they have
access to cash or work in financial functions.
Send bank and credit card statements
straight to the top. The
company’s owner, manager or a nonprofit audit
committee member should be the first to review all
bank account entries and canceled checks. Someone
without authority to issue checks should reconcile
bank statements and review them for forged or
altered checks. Before paying credit card bills,
support each charge with an original receipt.
Review documentation for all check
requests. Compare original
vendor invoices, purchase orders and receiving
reports for agreement on quantities, brands,
product descriptions and services requested. All
should be stamped “paid” and marked with the
related check number.
Monitor cash receipts and deposits
independently of employees recording them.
Have someone not involved in making
deposits or recording accounts receivable open the
mail, count money received and report totals to
the owner-manager or other official who compares
the reported amount to the amount deposited.
Reconcile accounts receivable and
accounts payable monthly. Have
the owner, manager or nonprofit audit committee
member review and clear all exceptions.
Check out first-time vendors.
Someone independent of buying and
payment processing should review all entries for
new suppliers. That person should call to verify
the supplier’s name, address and federal tax
Restrict authorization and access to
finances. Ensure that only
appropriate employees can make transactions or
have access to assets, documents and records.
Password-protect computer files and set dollar
limits on check authorization. Other safeguards
include dual custody of cash receipts or cash on
hand and ensuring cash and financial documents are
Make employees take vacations.
Especially require personnel in
accounting, human resources and cash-handling
functions to take one to two weeks off each year,
preferably at the end of an accounting cycle.
Cross-train employees so that someone else can do
their job—and double-check their work—during the
Watch for red flags in employee
behavior. They can include
substance abuse, gambling, change in lifestyle,
extramarital affairs, living beyond one’s means,
possessiveness of work, high personal debts, high
medical bills, peer pressures or simply
dissatisfaction with work.
Source: Leon A.
LaRosa Jr., CPA, is managing partner and chairman
of litigation support services at Gocial Gerstein
LLC in Jenkintown, Pa. He also is an adjunct
professor and director of The Institute of Fraud
and Forensic Accounting at La Salle University in
Philadelphia. His e-mail address is email@example.com.