Employee Theft/Fraud: Business Owners Beware

Boardman, OH – Any employer who believes employee theft, fraud or embezzlement is not a valid concern is naïve … at best. At worst, he or she could be one of the thousands of U.S. business owners who suffer considerable financial losses each year when their staff members steal from them. In fact, the U.S. Chamber of Commerce estimates that employee theft costs American companies anywhere between $20 billion to $40 billion annually. There is a distinction between employee embezzlement and employee theft:  Embezzlement deals with the misappropriation of a company’s funds by bookkeeping and accounting personnel, while theft deals with the broader area of inventory shrinkage caused by employee theft. Typically, there are two main triggers for an otherwise honest, trusted employee to turn to either embezzlement or theft: 1) Addiction, including gambling or involvement with drugs by the employee or a loved one, or 2) Pressure created by an economic downturn. Most cases of significant employee embezzlement or theft involves an employee of considerable tenure, with an exemplary work record and who is dedicated to the company by all outward appearances. Remember, only an employee in good standing has the implicit trust of the employer, without which embezzlement or theft would likely not be possible. Many times a breakdown in internal control creates a situation in which a dishonest employee can easily manipulate the system. Another characteristic common to this profile is an employer so busy that he or she is not closely involved with the accounting department.  In the case of some smaller companies, there is often a lack of staff expertise in place to ensure a strong system of internal control procedures i.e. there is virtually no system of checks and balances for potential employee theft. One or more of these factors combined with an employer’s blind trust in an employee, could prove to be very dangerous – and costly. Also, it is important to note that not all outside accounting firms have the ability to determine and/or disclose employee fraud to business owners. Therefore, it is critical for every employer to focus on his or her potential exposure to employee fraud as a precautionary measure. It is imperative that every businessperson understand why employees commit fraud, embezzlement or theft and to know what can be done to prevent it.  Sadly, many employers do not consider or address this issue until after an occurrence --when it is clearly too late. HbK is experienced in developing and implementing important internal controls that will help companies safeguard the integrity of financial records while simultaneously revealing discrepancies and potential red flags. Please contact HbK with any questions or for details on how to protect against employee embezzlement and theft. Source(s):  U.S. Chamber of Commerce; Hill, Barth & King LLC Established in 1949, HBK CPAs & Consultants (HBK) offers the collective intelligence of more than 400 professionals in a wide range of tax, accounting, audit, business advisory, valuation, financial planning, wealth management and support services from offices in Pennsylvania, Ohio, New Jersey, and Florida. HBK professionals deliver industry-specific expertise in manufacturing; healthcare (including long-term care); real estate and construction; automotive dealerships and not-for-profit organizations. HBK combines the technical resources and expertise of a large national accounting and professional consulting firm with the personalized attention of a local company
About the Author(s)

Phil is a Principal in the Youngstown, Ohio office of HBK CPAs & Consultants. Phil began his public accounting career in 1985 with Seidman and Seidman, now BDO USA LLP and joined HBK in 1987.

In 2004, Phil was selected as HBK CPAs & Consultants’ first Chief Operating Officer. He is responsible for managing the day-to-day activities of HBK and to ensure the firm continues to meet the exacting standards of today’s professional services firms. Phil also serves clients as one of the firm’s second review Principals, providing research and expert counsel on complex accounting and auditing issues. His industry experience includes manufacturing, nonprofits, healthcare, real estate, construction contractors and employee benefit plans. Phil also serves as President of HBK’s affiliated financial services firm, HBKS Wealth Advisors.

Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.