This cycle repeats itself regularly when the the economy dips. It takes time to uncover the loss so we typically see the incidents increasing within 18-24 months of a downturn. And that is NOW!
Employee dishonesty can only take place when one person controls all of the accounting functions as often happens in a small business. This occurs when the “trusted” employee is given too much control over the books and accounting duties. Why would a business owner do this? It is simple- TRUST and EASE! The other risk of employee dishonesty is collusion. This transpires when two people work in tandem to steal money from the business.
In order for an owner to protect the company from an employee stealing, it is imperative that the person responsible for taking money in does not send money to the bank for deposit, and books kept by one person should be reconciled by another. If only ONE CONTROL can be implemented, I suggest the owner or the CPA reconciles the bank account monthly.
Purchasing a fidelity bond/employee theft coverage is a risk management tool for reimbursement, however, the insurance company should require some separation of duties and/or dual control in the daily operation of the business.
The handout attached prepared, by The Travelers, Fidelity Controls- Travelers offers suggestions as to how a two and three person staff can split the functions in order to implement effective internal controls. Please contact us for further information concerning this risk to your livelihood!
Written by: Lynne W. Cook, Senior Vice President, EC&S