General Defalcation

When was the last time you considered your exposure to employee embezzlement and theft? Embezzlement deals with the misappropriation of a company's funds by bookkeeping and accounting personnel, and theft deals with the broadest area of inventory shrinkage due to employee theft.

There are usually two major factors that can cause an employee who has otherwise been an honest and trusted employee to suddenly become involved in an embezzlement or theft. The first is addiction, including gambling or involvement with drugs by either the employee or one of the employee's loved ones; the second is pressure created by an economic downturn.

Experience has shown that when a significant embezzlement or theft is discovered, it is usually a situation where the employee is a trusted person who has been with the company for an extended period of time. The employee has an exemplary record, is dedicated, and is considered to be a "company person." Additionally, if an employee did not have the implicit trust of the employer, the embezzlement or theft might not occur. The breakdown in internal control creates a situation where the dishonest employee can manipulate the system.

Typically, the employer is extremely busy and does not have time to get involved in the accounting department. Also, smaller companies may not have the staffing and/or financial expertise in place to ensure a strong system of internal control procedures. When you combine the previous factors with the employer's feeling of total trust in the employee, the situation can prove to be very dangerous.

Many businesspeople are not aware that the scope of a typical accounting engagement does not include specific services relating to the disclosure of employee fraud. It is of critical importance that every employer focus on his/her exposure to potential employee fraud. It is unfortunate that few businesspeople consider this potential for loss in their own operations. It is not until after such a theft is discovered that most employers become sensitive to their own exposure. It is imperative that every businessperson understand why employees commit fraud and what can be done to prevent employee embezzlement and theft.

Our firm can assist you in developing and implementing important internal controls that will help your company safeguard the integrity of your financial records while at the same time revealing discrepancies. Please email me or call me if you have any questions. I will be happy to assist you.

NOTE: This is NOT a free service.