Hamblett & Kerrigan : CHECKS AND BALANCES PREVENT EMPLOYEE FRAUD

CHECKS AND BALANCES PREVENT EMPLOYEE FRAUD

Embezzlement of company funds by employees is more common than reported in the newspaper. Often employers will work out private restitution agreements in order to keep the matter confidential and therefore out of the newspaper and the courts.

A system of checks and balances can diminish the likelihood that an employee will embezzle as well as help catch that employee who does embezzle before he can cause too much financial damage. The most common embezzlement is by the individual who receives the company’s bank statements, signs company checks and enters them into the company’s books. Generally the embezzling bookkeeper will write a check to himself or pay a personal bill of his own and, when the processed check comes in with the bank statement, he will destroy the check and enter a legitimate vendor as the payee into the books of the company.

The best way to thwart this practice is to have someone receive the bank statements at home and review them prior to turning them over to the bookkeeper. If the company has co-owners, the person who receives the bank account statements at home would be one of the owners who does not have check writing or signing authority. If there is only one owner, that individual should be the only one receiving the bank account statements at his home. By reviewing the processed checks and the bank account statement to see if there are any suspicious withdrawals, the company goes a long way with relatively minor effort to ensure that it does not become a victim of embezzlement.

Employers should understand that embezzlers are not always greedy. The embezzler may rationalize the theft because of a perceived wrong he believes the employer has committed. He might believe the end justifies the mean if there is a strong financial need by a family member such as paying for uninsured medical expenses. A check and balance system will help prevent any such employee from being tempted to embezzle.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at dmarr@nashualaw.com.

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