Preventing and Detecting Employee Theft and Embezzlement: A Practical Guide

Preface xiii

Acknowledgments xvii

Introduction xix

CHAPTER 1 Hiring the Right Employees 1

Disclaimer 1

Where Do You Start? 1

Advice of Counsel 3

Application Policy 3

Due Diligence 5

Personal Information 7

Past Employment 8

Education 9

References 11

Criminal and Civil History Checks 11

Credit Checks 13

Hiring Time 14

Hiring the Right Employees: Considerations 17

CHAPTER 2 Know Your Employees 19

Why Is Knowing Your Employees Important? 24

Open Communications 25

What Should You Watch for in Your Employees? 26

Know Your Employees: Considerations 29

CHAPTER 3 Sales, Cash Receipts, and Collections 31

Here’s Where Everything Starts 31

Recording and Tracking Sales 32

Collections 44

Debit Memos and Other Adjustments 48

Accounts Receivable 52

Sales, Cash Receipts, and Collections: Considerations 54

CHAPTER 4 Credit Card Sales, Transactions, and Merchant Statements 59

Processing Sales 59

Reconciling Sales 61

Processing Refunds or Credits 61

Reviewing and Reconciling Refunds or Credits 63

Reviewing and Reconciling the Merchant Statement 67

Credit Card Sales, Transactions, and Merchant Statements: Considerations 69

CHAPTER 5 Purchases, Cash Disbursements, Checks, and Petty Cash 71

Purchases 75

Cash Disbursements/Checks 80

Unpaid Bills/Accounts Payable 84

Petty Cash 86

Purchases, Cash Disbursements, Checks, and Petty Cash: Considerations 88

CHAPTER 6 Credit Cards and Debit Cards 91

Credit Cards 94

Debit Cards 96

Credit Cards and Debit Cards: Considerations 99

CHAPTER 7 Employee Expense Reimbursement 103

Expense Submission 104

Where Are the Abuses? 106

Payment Processing 109

Employee Expense Reimbursement: Considerations 111

CHAPTER 8 Electronic Banking 115

Traditional Banking (In-Person Deposits and Manual Check Writing) 115

Check Processing and Clearing Changes 117

Changes in Bank Deposits 120

ATMs 121

Online Banking 122

What Can You Do? 123

Electronic Banking: Considerations 132

CHAPTER 9 Payroll Processing 137

Payroll Administration: Adding/Changing/Terminating 138

Payroll Processing 142

Payroll Tax Returns 149

Payroll Processing: Considerations 151

CHAPTER 10 Inventory Issues and Controls 153

Prevention: Good News and Bad News 153

Retail Businesses: Items Available for Sale 153

All Businesses: Items for Use by Employees (Supplies, Tools, and Equipment) 166

Detection 166

Inventory Issues and Controls: Considerations 169

CHAPTER 11 Bank Statements, Canceled Checks, and Reconciliations 173

Bank Statements 177

Investment Account Statements 178

Canceled Checks 178

Bank Reconciliations 181

Bank Statements, Canceled Checks, and Reconciliations: Considerations 187

CHAPTER 12 Financial Reports 189

Generate Financial Reports Regularly 190

Why Is the Regular Review of Financial Reports So Important? 195

When to Consider Outside Advice and Assistance 196

Financial Reports: Considerations 202

CHAPTER 13 Safeguarding Your Bookkeeping or Accounting Systems 205

Manual Bookkeeping Systems 206

Computerized Bookkeeping and Accounting Systems 209

QuickBooks Users 222

Safeguarding Your Bookkeeping or Accounting Systems: Considerations 224

CHAPTER 14 Prevention, Detection, and Insurance 227

Timing Is Everything 229

Adequacy of Coverage 230

Responsibilities for a Claim 230

Disclaimer 235

Prevention, Detection, and Insurance: Considerations 236

CHAPTER 15 Your Response to an Identified or Potential Issue 239

A Dreaded Day of Discovery 239

Due Diligence on the Discovery 243

What If It Appears to Be Fraud? 246

Your Response to an Identified or Potential Issue: Considerations 249

Appendix A: Embezzlement Controls for Business Enterprises 253

Appendix B: Who Was Lester Amos Pratt? 291

About the Author 295

Index 297