It Could Happen To You

Denise Rondini

June 12, 2012

Embezzlement is not just something that happens in large companies. It happens in small businesses, too,  and often is perpetrated by a trusted employee.

By Denise L. Rondini, Executive Editor


Believe it or not, embezzlement is more likely to occur in businesses with fewer than 100 employees, according to Zurich. It also commonly is carried out over a number of years rather than as a one- time event. And, sadly, embezzlement can be carried out by someone the business owner relied on and trusted.

That last element is what makes truck dealer susceptible to being embezzled. It also can cause a shock when they discover the crime.

Zurich says most states define embezzlement as theft or larceny of assets, either cash or property, by a person in a position of trust or responsibility over those assets. Zurich explains that security experts refer to the 10-10-80 rule when discussing embezzlement. This means 10 percent of employees will never steal; 10 percent will always steal; and 80 percent of employees will steal given the right opportunity, motivation and justification.

“In other words, given the right motivation they will ‘borrow money” fully meaning to repay until they realize they have gotten in so deep repayment is virtually impossible,” Zurich says.

As a dealer, you need to put in place processes and procedures that will prevent the right opportunity from presenting itself.

The process starts at the time of hire. If you are not already doing so, add background and credit checks to your hiring process at least for those employees who will have access to your dealership’s cash. Performing background and credit checks on all employees can help prevent goods (tools, parts) from walking out the door, but if you have a large operation that can get quite costly. In that case, limit the checks to those employees who handle your cash.

Perhaps the biggest deterrent to embezzlement is for dealer principals and managers to understand that it can happen at their dealership and that there are a number of ways for employees to embezzle from you.

Zurich lists these common embezzlement schemes:

  • The bookkeeper pays himself. In this scheme, the bookkeeper takes a business check, makes it out to himself and signs it.
  • Duplicate payment of phony accounts. This occurs when the bookkeeper pays an invoice with multiple checks over time and creates a phony bank account to deposit the second check.
  • Check alteration. The bookkeeper either alters checks paid to your dealership by customers, or creates a phony bank account to deposit checks.
  • Double billing. The bookkeeper bills customers twice for the same work and deposits checks in a phony account.
  • Duplicate checks. The bookkeeper orders duplicate checks for your account and then proceeds to write duplicate checks to vendors and then deposits the duplicate checks into the phony account
  • Credit card transactions. An employee makes credit card sales and then issues a credit for that sale back to his own credit card.
  • Petty cash expenditures. An employee spends petty cash on personnel items.

The easiest way to prevent most of these types of embezzlement is to divide the work among several people so that no one employee is responsible for the entire process.

This can be as simple as having one person handle accounts payable and another accounts receivable, having one employee writing checks but someone else reconciling the bank account or requiring two signatures on all checks.

Your CPA can help you to set up internal accounting controls, Zurich says, adding that you need to test the controls on a regular basis. “Many times business owners fail to follow the recommendations set forth by their CPA and open themselves up to embezzlement.”

It also can be helpful to simply walk around your business to see what is going on. Stopping to ask questions about a process or procedure can send a message to employees that you are overseeing operations and are aware of what occurs in your business.

Two red flags of potential embezzlement are a change in an employee’s lifestyle and an employee who never takes a vacation. While you may initially think that an employee who is in early, stays late and never takes time off is an asset, it can be a sign that an employee does not want anyone else to see their work. Insist that employees take vacation, and have someone else review their work while they are gone.

Zurich has found that embezzlement often is tied to funds set aside to pay taxes because “it typically takes the agencies that regulate the payment of taxes a long time to address non-payment of taxes. This gives the embezzler the opportunity to steal a significant amount of money before the owner knows that is it gone. Watch tax payments carefully.”

Your initial inclination when you discover that an employee has been embezzling from you may be to handle it internally, experts advise business owners to get law enforcement personnel involved.

While you may be hesitant to do this because of the adverse publicity and embarrassment, it is important to alert the authorities if for no other reason than it sends a message to other employees that you will prosecute offenders. That alone could be a deterrent.



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