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Prevent Embezzlement In Your Furniture Business

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Rhonda R. Savage, DDS

With the economy improving, John was thrilled to see his furniture store starting to boom. With all the new business, John was so busy implimenting his new sales system and social networking initiative, he delegated the bookkeeping responsibilities to a long-time employee he trusted. As time passed, John started noticing discrepancies in the business’ account and discovered the employee had been embezzling money from the company. Unfortunately, embezzlement is not uncommon and is often difficult to detect. What could John have done differently to prevent this kind of problem?

Embezzlement is a crime of opportunity and trust.  A person who is trusted is placed in a position that allows him or her complete access to the financial data of the business, typically with minimal or no oversight by the supervisor or owner.  The best way to prevent embezzlement is to first, be honest yourself in your activities.  Leaders must lead by example.  Secondly, pay your employees well and treat them well.  Third, hire the right employee. Start by checking all references.  Consider obtaining fidelity bond insurance coverage on this employee.  If the employee is not bondable, do not place them in the position of handling your financial matters. Run a criminal background check. 

Here are some simple techniques that decrease the opportunity and temptation for embezzlement:

Assign designated duties. 

Do not have only one person handle the incoming mail, deposits, balance the checkbook and send statements.  This is difficult in smaller businesses with only a few staff members.  In this case, the owner needs to handle or outsource payroll, tax preparation, balancing the checkbook and management of the accounts payable.  If the owner chooses to outsource this work to a bookkeeping company, the same due diligence of inspecting the bookkeeper’s work is very important.

The owner should review reports.

Every day, you should have an end-of-day report, an adjustment report, a history of payment that breaks down cash receipts, credit card payments, checks and outside financing for services on your desk. The owner should compare the deposit slip receipt to the deposit.  Do an occasional mini-audit of the books.  Let your staff know you’re looking daily by questioning them. For example, say “I see Mrs. Smith didn’t pay for today’s fee; is there a reason why?” This shows your employees you are keeping an eye on the day’s activity.  These checks take 5-10 minutes of your day. 

Review your bank statement. 

Inform your staff that they are not to open any mail from a banking institution.  Even better…have your bank statements sent to your home address if your mailbox is secure.  Scan the checks that were written.  Your signature should be on each check.

Know where your money is going. 

If you do utilize an employee to process your accounts payable, develop a system for your mail.  Staff members should put the incoming mail in one location on your desk.  Review the bills and put them into an in-basket for the employee to process.  Have them print the checks and attach them to the invoice, then sign them.  If you don’t recognize a check, question it.  A different staff person should stuff the envelopes and mail the payments.  If the same person pays and stuffs the envelope, the checks can be changed. 

Establish office policies.

Make deposits daily, close and balance each day, bill as services as rendered and send periodic statements if purchasing extends over time.  Review your monthly reports. Each month should be closed out prior to running the reports to prevent changes from happening. Write pre-numbered receipts for all cash payments and monitor petty cash. All records should be kept at the office. Do not allow employees to work extended hours and establish password control for sensitive areas, such as payroll.

Watch your overhead numbers.  Learn to read your financial statements.  You should know the basic overhead numbers for the business.  One example of a common fraud/embezzlement system involves double payment for supplies, or the creation of dummy vendors.  Another example is the ease of obtaining preauthorized credit cards in your name, using the credit card to pay personal bills and developing schemes to pay the credit card. Run periodic credit checks on yourself and watch open lines of credit.

Be a fair, consistent, honest leader.

Leaders live in glass houses.  We cannot expect our staff to model differently than we ourselves model.  Don’t take supplies from the office home.  This teaches your team that stamps, pens and office supplies are okay to take home.  Watch your use of time in the office.  If your time involves taking personal calls, surfing the Internet or running a side business and you are not focused on your primary business, your team will do the same. 

Time embezzlement is the greatest loss to the majority of practices.  General Norman Schwarzkopf said, “You don’t have to be loved to be a leader, but you do need to be respected.  Respect must be earned.  To be respected, you must give respect.”   Set your office policy regarding cell phone and Internet usage during office hours, and then abide by it yourself.  An employee that embezzles by spending time on the phone or Internet not only hurts your bottom line, but he or she impacts the entire business.  Because of the increased burden on the team that is working, resentment builds. And with the resentment, you’ll experience decreased morale, which leads to loss of production.

Know that you shouldn’t become immediately suspicious of your team, but that there are steps you can take to reduce your risk.  Consider these steps to be a positive focus for your business.  You will become a better manager of your business when implementing these steps, protect your assets and enjoy more profitability which you can then share with your team in the way of rewards, bonuses and increased pay.

ABOUT THE AUTHOR: Dr. Rhonda Savage is an internationally acclaimed speaker and CEO for a well-known practice management and consulting business. Dr. Savage is a noted motivational speaker on leadership, women's issues and communication.   For more information on her speaking, visit www.MilesGlobal.net or e-mail Rhonda@MilesandAssociates.net.

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