Allen Liebnick
Allen Liebnick

Is Your Company a Victim of Lost Dollars?

Prevent embezzlement with these seven best practice tips.

November 5, 2009
by Allen Liebnick, CPA, CFF

In past articles, I have divulged how to recover “lost dollars,” or monies that companies may have inadvertently overpaid due to honest mistakes. Those honest mistakes have ranged from simply overpaying a vendor to missing discounts to paying sales tax on tax exempt purchases. I have also shown you how to not only detect and correct those overpayments from happening, but also how to recover those dollars. When clients reduce their workforce by almost half and burden those who have “survived” the layoffs, honest oversights and overpayments are bound to occur.

In this article I reveal the “other” side of lost dollars, in which money is lost due to the intentional and willful acts perpetrated by employees. Employee theft rises in a recession. The fact is: white collar crime is increasing. It is estimated that up to a third (30%) of employees steal, and nearly two out of three (60%) would steal if they felt they could get away with it. According to the Association of Certified Fraud Examiners (ACFE), the typical business will lose an average of six percent of revenue from employee theft. Compare that to a typical recovery that our company makes for its clients due to honest mistakes of one-tenth of one percent of gross revenue!

Is this a problem only in large businesses where a white collar crime can go undetected?

Contrary to popular belief, an ACFE report to the Nation on Occupational Fraud and Abuse, indicated that small businesses suffer disproportionate losses. Recently, a U.S. Chamber of Commerce survey reported that a third of business bankruptcies occurred because of employee theft.

What constitutes employee theft?

  • Embezzling or the stealing of a company’s funds for personal use;
  • Stealing from a company’s inventory;
  • Unauthorized discounts of company merchandise to family and friends;
  • Stealing customers’ identities; and
  • Stealing a company’s customer list and insider knowledge, to become their former employer’s competitor.

Of course, we all know this list can be a lot longer, but the above is basically the icing on the cake.

Preventing Fraud

How does a company protect itself from these white-collar crimes, especially where employees are frequently more knowledgeable about the company’s software than their managers, making it even more difficult to determine when embezzlement has occurred? By being both vigilant and recognizing that it can happen to them.

  1. Tracking of fixed assets.

    While a larger company may have a department that tracks all of the company’s fixed assets, smaller company’s rarely keep track of serial numbers on computers, monitors, printers and scanners. I recently was at a client that buys a huge amount of monitors that become part of the equipment they sell. They are also constantly upgrading their in-house computers and monitors. Rather than keeping a detailed inventory of what went where, they were estimating where the equipment ended up. From our prospective, they may have been paying sales tax on items that were, in fact, for resale, but with such a loose arrangement, were opening themselves up for employee theft.
  2. Background checks.

    My attorney friends are always amazed at how lax companies are in doing background checks on potential employees. They emphasize that a background check should include criminal and civil histories, verification of educational degrees, positions, length of employment along with driver’s license checks for serious violations.
  3. Surprise Audits.

    Employees know when they will have scheduled audits. However random, unannounced financial and fraud assessments may expose vulnerabilities that can be corrected before any irregularities occur. One of the services we offer when doing an accounts payable (AP) recovery is matching bank account numbers for direct deposit vendors with the direct deposit bank account numbers for the company’s employees. This is a way of determining if an employee has created a fictitious vendor and diverted company funds into his/her own account.
  4. Anonymous reporting.

    An anonymous reporting system allows employees, vendors and customers to report violations and questionable acts. One of our clients — a firm with over 1,200 employees — gave out the direct telephone number of the president to all of its employees to report any violation of policies or procedures. Not only did this reduce a problem that they were having with their inventory control, but reduced their occurrences of accidents as well. The key to having a working reporting system is to thoroughly and promptly investigate the violations reported. Keep records of incidents reported and follow up to either nip problems in the bud or at least, have the documentation necessary to pursue recovery.
  5. Checks and Balances.

    While it may sound very basic, a company should revisit and review the checks and balances they have in place. Make sure that they are still in effect and are effective.
  6. Monitoring of Internet activities.

    Many larger firms today not only monitor employees e-mail, but require that employees give them all their passwords. Companies have created positions that employ people to monitor their employees’ networking sources such as Facebook, to not only be sure there isn’t any offensive material regarding their employer, but to see if any company policies are being violated. Firms that are involved in dealing with sensitive data for their clients are now requiring that the company have the ability to monitor all of their employees’ investment funds to avoid insider trading.
  7. Comprehensive policy regarding employee theft.

    While some of the above sounds like “big brother” watching you, a plan or a policy is only as good as the company’s intent to adhere to it. By establishing a clear, consistent and comprehensive employee-theft policy, your company will be taking the necessary steps, but must also be willing to follow through. Trusted employees who have been with the company for years and are like family and have been taking unauthorized funds because they consider themselves “entitled” to loans or advances must be treated the same way as your new employees who have been walking out the back door with stolen merchandise in their back pocket.


What is the best policy for preventing employee theft? Establish an ethics policy that starts from the top. If employees see top management bending the rules to be more profitable, then it becomes a situation of “if it’s good enough for them, then its good enough for me.” Create the policies, stick to them and let your employees know that ethics are established not only in the workplace, but in the way the company conducts itself in the business world.

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Allen M. Liebnick, CPA CFF, is president of Overpaid Payables Recovery, Inc. A former associate professor, Liebnick has been providing accounts payable, sales tax and telecommunications post audit recovery services for over 15 years. He serves clients in the U.S., Canada and Mexico. He is a member of the New York State Society of Certified Public Accountants as well as Texas Society of Certified Public Accountants.