Who Watches the Watchmen? - How To Avoid Internal Theft

Business websites across the internet are peppered with advice on how to decrease internal theft — some of them promoting Orwellian monitoring of employees (watch them as they take out the garbage, make sure they're always in pairs, and tell them all of their computer activities are being constantly monitored).  This can be effective — if not a little paranoia inducing — but this can be avoided with a good accountant who knows costs and when the numbers just don't add up.

But what happens when the accountant is the one stealing?

An article ran in the Edmonton Journal on June 27, 2014, that covered the story of Jody Lynn Moon, an accountant with an automotive electronics shop who ended up stealing just under $48,000 from her company over the course of four years. She used company cheques to pay for her energy bills, and stole cash incrementally until it totaled over $26,000.

While she was eventually caught, it will still take the company time to recoup their losses. It would've been much better had it never happened in the first place. These are a few processes you can put in place to avoid opportunities for internal theft.

1.  Recognize it can happen.

The most common reaction to an employee stealing is being caught completely of-guard — you'd have never expected it to be that employee. But being aware that internal theft can happen does not mean you can't trust your employees, either. That's why it's important to have company policies in place. Policies also protect employees from false accusations by setting out a clear set of responsibilities.

2.  Screen potential employees.

Thoroughly checking the references and previous employers of a prospective employee will greatly reduce your risk. If you do not have the knowledge or resources, there are many HR consultants or hiring firms who can assist you.

3.  Separate duties.

No single individual should have at the ability to affect every stage of the accounting process. For example, have one person handle accounts payable and a different person handle receivables. Set policy about how cash is handled so no individual is in charge of receiving, accounting for, and depositing the cash. Also, the person who prepares the payables should not sign the cheques. A manager outside of the accounting department should review the bank statements.

4.  Review your internal controls regularly.

Ask if there are ways to make the processes more transparent, or if each step of your internal processes are covered. For example, if you've recently started transferring your business's money electronically, be sure to have clearly outlined processes and ways you can monitor each step.  

5.  Ask us for help.

Depending on your industry, the size of your business, and the way you handle your accounts, there may be numerous other ways to protect yourself. The partners and staff at Hawkings Epp Dumont LLP are your best resource for preventing internal theft. Call us. We'd love to help you feel protected and secure.

Tyler Vreeling