Guest column: Guard against worker theft
| Monday, Nov 09 2009 02:39 PM
Last Updated Monday, Nov 09 2009 02:41 PM
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Dustin S. Dodgin
One of the most common thieves does not wear a ski mask or use a crowbar. Instead, during this challenging economic climate, our nation’s businesses face the most risk of theft from those who wear name badges and have a key to the office — that is, the employees.
Surely, the vast majority of employees pose no threat, but the economy has led to an increase in embezzlement. In light of the heightened risk, it is recommended that you review your cash-handling procedures and financial transactions as well as take note of the following tips.
Prevention. From requiring two signatures to extensive audits, there are countless ways to prevent employee theft. The simplest, however, is often overlooked. An employer can review an applicant’s criminal charges or convictions online without paying any fee. Most counties, including those in the Central Valley, offer a no-charge, name search of criminal cases within the county.
The case results, if any, will indicate the nature of the charges, when the charges were filed and the outcome of the case. Employers no longer need a private investigator to know whether they are hiring a felon or getting a truthful answer to the “prior conviction” question on the employee application.
Insuring Against Embezzlement. Employee theft is becoming increasingly sophisticated. Regardless of the precautions taken, the Internet explains a work-around for nearly every theft prevention measure. Fortunately, insurance companies offer coverage to guard against the risk of employee embezzlement, often referred to as employee dishonesty coverage. Some identify theft policies may also cover certain forms of employee theft. You should review your commercial policies to ensure you have employee dishonesty coverage — some form of identity theft coverage is also advisable.
An employer can be indemnified for the loss of money or other property loss through the process of “bonding” employees. There are several types of fidelity bonds, including individual (covers one employee, oftentimes purchased for small or family-operated businesses); name schedule or position schedule (covers specified employees or specified positions within the company); blanket fidelity (covers all employees); and blanket (meant to provide multiple protection such as comprehensive dishonesty, disappearance, destruction, etc.). It is best to speak with your insurance agent to determine which plan may be best for your business.
Immediate Attention. In addition to the obvious benefit of cutting off further theft, immediate attention to suspected embezzlement has additional, lesser-known advantages. For example, under the Electronic Funds Transfer Act, your bank or credit card company may return a portion or all of the embezzled funds to you.
However, a financial institution may limit this reimbursement if you fail to notify them in a timely manner. Generally, this means contacting the bank within two business days from learning about the incident or within 60 days from the date the unauthorized activity appears on your bank statement.
Checks and Balances. Simple changes to accounting processes can significantly reduce the temptation and opportunity for embezzlement. In many embezzlement cases, the perpetrator has unregulated access to all steps in the financial process with very little oversight. Oftentimes, that employee is a long-term, “trusted” employee. However, employers should remember that checks and balances and separation of duties not only help reduce embezzlement, but also protect honest employees from suspicion.
Effective steps for employers include separating check signing/writing authority from bank reconciliation responsibilities; regular review of invoices and payments; regular rotation of accounting duties; physical review of “cleared” checks (to determine if they have been changed after signing); and onsite audits by third-party experts (e.g. CPAs).
If you are interested in learning more about protecting your company from embezzlement or if you have been the victim of employee theft, contact a trusted advisor, such as your attorney, accountant or insurance agent, so that plans for protection can start now.
Dustin S. Dodgin is an associate attorney with the law firm of Klein, DeNatale, Goldner, Cooper, Rosenlieb & Kimball, LLP. His practice focuses on counseling and litigation for all types of business.
