[EDITOR’S NOTE: FROM THIS MORNING’S YORK DAILY RECORD: “Former York Symphony Orchestra manager charged with stealing more than $200,000.”]

On Sunday of this week, another article about another “trusted employee” in the Lancaster Sunday News appeared. This time, the trusted employee took enough money to disable the business completely. Secret Sneaker is going out of business, in part because a “trusted employee” purportedly grabbed more than $115,000 in funds from the operation.

(Photo source: sfcriminallawspecialist.com)

What is distressing about this scenario is that Secret Sneaker is an American small business success story: small-town sports celebrity works hard; builds business from the trunk of his car; develops into successful operation.

Columbia news, views & reviews has written about theft and embezzlement from small business and “not-for-profit” enterprises repeatedly. In all too many of the situations, the swindler or thief is a trusted staffer; the bookkeeping practices were not transparently managed or top leadership was absent, incapable or complicit.

We went to the Website mentioned in the Secret Sneaker article, FraudTalk, and found this narrative: “FraudTalk is a blog focused on the review and discussion of recent significant cases of fraud, corruption and employee misconduct – particularly major embezzlement cases in the US. Fraud Talk is published by Marquet International Ltd., an international investigations, litigation support and due diligence firm. This blog is intended for attorneys, law enforcement, investigators, regulators and others interested in white collar fraud trends, enforcement and prevention.”

At the site, we found an article entitled, “Profile of an embezzler.”

Below is a list of some of the proactive steps organizations can take to minimize the risk of being victimized by our imaginary (staffer) as described above (in the article):

• Do not allow a single individual access to all aspects of company finances. Make sure there is a division of duties in the finance department.
• Regularly rotate responsibilities for bookkeeping personnel.
• Require bookkeeping personnel to take time off and vacations. Embezzlers often take little or no vacations to perpetrate their schemes.
• Do not allow bookkeepers to take work home.
• Require two signatories on outgoing checks above a certain nominal amount. The signatories should be different individuals from the check preparer.
• Examine cancelled checks regularly. One common method of embezzlement involves the forgery of checks. Another is to have them payable to the embezzler or their personal vendors.
• Maintain unused checks in a lockbox. Be sure all checks, purchase orders and invoices are numbered consecutively and reconcile any of those missing.
• Conduct regular as well as random audits. Owners should take a hands-on management approach by physically spending time with the bookkeeping department.
• Audit petty cash regularly.
• Audit credit card charges regularly.
• Audit expense reports regularly.
• Be sure each payment, electronic or otherwise, is backed up with appropriate documentation.
• Backup financial records daily.
• Make and reconcile daily deposits. Use a “for deposit only” stamp for check deposits. The person recording cash receipts should be different from the one making the actual deposits.
• Bank reconciliations should be made by a different person than those that handle cash receipts and cash disbursements.
• Know who your vendors are. Embezzlers often create phony vendors and submit fraudulent invoices for payment.
• Examine payroll records regularly. Some embezzlers issue themselves extra paychecks and bonuses through the payroll system.
• Investigate customer and vendor complaints promptly. If vendors are not being paid as expected, it may be a sign that the payment checks are being diverted.
• Conduct pre-employment background checks for all personnel with fiduciary duties.
• Prosecute perpetrators, creating a permanent record future employers can find.

(The staffer) may be a business owner’s worst nightmare, but with some prudent attention to your business, much of the risk can be mitigated