Employers should make it hard to embezzle
Published 05/22/01

It is important for employers to take measures to decrease the potential for embezzlement by workers. While most workers are honest, unfortunately some, given the opportunity, may be able to rationalize embezzling company funds. When embezzlement occurs, it is often by someone that has access to the company's books and checks.

One of the more simplistic methods of embezzlement occurs when a person has: (a) check signing authority; (b) is in charge of bookkeeping; and (c) receives directly from the bank the monthly account statements with the processed checks.

In such a scenario, the bookkeeper could sign checks directly to themselves, family members, or to others on their own behalf, destroy the processed checks when they come in with the monthly bank statements, and enter into the computer system or ledger a fictitious payee. It is also possible that a worker may forge a signature of someone who has check signing authority.

Another scheme involves setting up a bank account in the name of a fictitious company whose name appears to be a legitimate vendor on the account receivable records, established by the worker solely for the purpose of depositing company funds into the phony account. After establishing the bank account for the phony company, the worker would deposit company checks into the account and thereafter withdraw those funds for his personal use.

One measure to safeguard against embezzlement is to instruct the bank to send the bank statements directly to the home of a trusted company officer who does not have check signing authority. That officer would be in charge of reviewing the processed checks to see if there appear to be any fictitious payees or if any checks were signed by the payee himself.

While a company check signed by the payee himself is usually legitimate, it is prudent to have an internal financial policy wherein the signer of the check cannot also be the payee. It may also be prudent to randomly select past monthly statements with processed checks and match them up with the accounts receivable records to see if any checks identified in the monthly bank statements as having been processed are now missing.

If embezzlement is uncovered, there are a variety of options the employer may have other than merely reporting it to the police for prosecution. It would be prudent for the employer to contact an attorney familiar with handling such fraud cases to determine the best strategy in attempting to maximize recovery of the embezzled funds.

J. Daniel Marr is a director and shareholder at Hamblett & Kerrigan, PA whose legal practice includes counseling businesses and business persons on a variety of legal issues and advocating on their behalf. Attorney Marr is also an adjunct professor at Daniel Webster College where he teaches business law. You can reach Attorney Marr by e-mail at: dmarr@hamker.com

This information is general information and may not reflect the most current legal developments, verdicts or settlements. The information provided should not be relied upon as an indication of the actual state of the law or of future developments. The information contained on the Hamblett & Kerrigan website is for informational purposes only and does not constitute legal advice. If the information referenced may be of legal importance to you, you should consult with an attorney to provide you with legal guidance and opinion as the the effect of the current law upon your situation.