Tips to Avoid Employee Embezzlement

Posted on by Complete Controller
Employee Embezzlement - Complete Controller

By: Jennifer Brazer

Jennifer is the author of From Cubicle to Cloud and Founder/CEO of Complete Controller, a pioneering financial services firm that helps entrepreneurs break free of traditional constraints and scale their businesses to new heights.

Fact Checked By: Brittany McMillen


5 Tips to Avoid Employee Embezzlement and Protect Your Business

Did you know employee embezzlement costs businesses over $50 billion annually? According to the 2022 Report to the Nations by the Association of Certified Fraud Examiners, an average company loses about 5% of its yearly revenue to workplace fraud. That’s not a minor bump; it’s a looming threat that can derail even the savviest business owners. You’ve worked too hard to let employee theft or financial misconduct jeopardize your livelihood.

As someone who made financial literacy my life’s work, I want to equip you with powerful strategies to shield your business from these risks. Let me share five actionable tips to guard against embezzlement—ranging from instituting strong internal controls to harnessing cutting-edge technology. With a little preparation and vigilance, you can stop fraud before it starts. LastPass – Family or Org Password Vault

What is Employee Embezzlement?

Employee embezzlement occurs when an employee abuses their position of trust to steal from a company. This could take the form of payroll fraud, inflating expenses, or simply pocketing cash from a register.

Let me break it down with a couple of real-world examples. Imagine an employee tasked with payroll manages to direct extra funds to a fake account they control—that’s payroll fraud. Or picture a trusted worker secretly taking inventory for personal resale—that’s internal theft. These actions may differ in method, but they all damage your bottom line in alarming ways.

And this isn’t just a “big company” problem. In fact, statistics show that 22% of small business owners report employee theft, with incidents increasing annually—from 1 in 50 employees in 2023 to a projected 1 in 35 by 2025 [1][4].

The Consequences of Employee Embezzlement

Embezzlement doesn’t just dent your bank account; it sets off a chain reaction that can have far-reaching repercussions.

  • Financial Losses: Embezzlement cases cost businesses an average of $357,650 per incident [1]. For many small to mid-sized businesses, that kind of hit could limit operations—or shut the doors entirely.
  • Legal Issues: Lawsuits or legal inquiries make messy situations even costlier.
  • Reputational Harm: Partners and customers lose trust in businesses that are perceived as vulnerable.

Consider the Tyco International Scandal: At the helm, CEO Dennis Kozlowski and CFO Mark Swartz misused company funds for their personal luxuries—including a $6,000 golden shower curtain. The financial losses and reputational fallout took years for Tyco to recover from, underscoring that unchecked fraud risks long-term damage (Tyco International Scandal on Investopedia).

The takeaway? Fraud isn’t just about stolen money—it’s about lost trust.

Tip 1: Implement Robust Internal Controls

Strong internal controls are your first line of defense against fraud. They create layers of accountability and reduce opportunities for unethical behavior.

How to Get Started:

  • Segregate Duties: Avoid a system where one employee has unchecked authority. For instance, the person approving vendor payments should not also issue checks.
  • Require Dual Authorization: For critical actions like wiring money or issuing large payments, always ensure at least two people’s approval.
  • Conduct Surprise Audits: Fear of the unexpected can deter would-be fraudsters.

As the CEO of Complete Controller, I’ve seen firsthand how businesses build fortresses with policies that combine effective bookkeeping practices and tight internal controls. These aren’t just best practices—they’re smart business. CorpNet. Start A New Business Now

Tip 2: Conduct Thorough Background Checks

Think of hiring as installing the hardware on your business: Would you knowingly buy equipment that you knew had a fault? The same reasoning applies to hiring. Background checks are your assurance that you’re onboarding trustworthy team members.

What to Look For:

  1. Verify Their Resume: Check references to confirm skills, roles, and accomplishments.
  2. Criminal Records: Search for any history of theft, fraud, or other financial misconduct.
  3. Financial Integrity: For positions that deal directly with money, ensure their financial track record is consistent and honest.

Skipping this step invites unnecessary risk. Lean on third-party services if your internal team cannot support rigorous checks.

Tip 3: Monitor Financial Transactions Regularly

Even the tightest controls can sometimes be bypassed, which is why active monitoring of your books and financial activities is critical.

Best Practices to Adopt:

  • Leverage Accounting Software: Programs like QuickBooks can track and flag irregularities in real-time.
  • Audit Payroll Routinely: Pay close attention to spikes in bonuses, overtime, or adjustments that seem out of line.
  • Automate Alerts: Configure systems to notify you about transactions exceeding certain thresholds.

In my experience at Complete Controller, real damage happens when discrepancies are ignored. Stay alert, schedule reviews, and prioritize accurate financial statement accuracy.

Tip 4: Foster an Ethical Work Culture

Employees are less likely to engage in theft when they feel part of a supportive, high-integrity community. Transparency and ethics are powerful deterrents to fraud.

How to Cultivate This Culture:

  • Set Clear Policies: Include detailed anti-fraud policies in your employee training and handbooks.
  • Encourage Whistleblowing: Create anonymous reporting options and assure employees of no retaliation.
  • Lead by Example: Your leadership sets the tone. Show integrity in every interaction to inspire the same from your team.

Think of your workplace culture as soil: Toxic soil breeds nothing worthwhile; healthy soil grows thriving teams. Building this culture is one of the most effective fraud prevention strategies you’ll ever adopt.

Tip 5: Use Technology to Detect and Prevent Fraud

Advances in artificial intelligence and fraud detection software have made it easier to identify threats before they cause harm. As embezzlers refine their methods, technology evolves to stay one step ahead.

Here’s What You Should Do:

  • Invest in Fraud Detection Tools: Try platforms like Fraud.net that continuously monitor for anomalies.
  • Sync Platforms: Integrate fraud detection software with payroll and accounting systems for seamless alerts.
  • Keep It Updated: Outdated systems are more vulnerable. Regular updates ensure glitch-free security.

Embrace fraud detection and prevention strategies to transform your tech into an unwavering watchdog for your business.

Conclusion

Employee embezzlement may feel like an inevitable risk, but it doesn’t have to be. By implementing internal controls, running diligent background checks, monitoring activity, creating a culture of transparency, and leveraging technology, you can defend your hard-earned revenue.

Proactively putting these strategies in place won’t just protect your bottom line—it will secure the trust of your customers, employees, and partners. Don’t let today’s risks drain tomorrow’s potential. Contact the experts at Complete Controller here and fortify your business against fraud today. Download A Free Financial Toolkit

FAQ

What are the most common types of employee embezzlement?

Payroll fraud, corporate expense manipulation, and internal theft are the top offenders.

How can I detect employee embezzlement early?

Look for discrepancies in payroll, unusual vendor payments, or spikes in expense trends.

How do I report embezzlement?

Gather evidence, consult a legal advisor, and report it to authorities promptly.

What are the legal consequences of embezzlement for employees?

Fines, prison time, repayment, and reputation damage are typical consequences.

Can technology really help prevent workplace fraud?

Absolutely! AI systems and software offer real-time anomaly detection that’s far more efficient than manual monitoring.

Sources

ADP. Payroll – HR – Benefits About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Complete Controller. America’s Bookkeeping Experts