Someone is in all probability stealing from you right now! How do I know this? Fifty years of experience, statistics and human nature. After all, “while the cat’s away, the mice will play.” Employees are our biggest strength, and yet they can also be our greatest weakness.

Most employee theft is not discovered because we were prepared enough to be proactive, but rather because the thief got careless and lazy and the scheme(s) worked so well in the beginning that they remained undiscovered. “Give someone an inch, and they will take a mile.” We are often a mile down the road before we recognize that revenue is walking out the door. Consider these statistics:

  • The typical organization loses 5 percent of revenue to fraud each year.
  • The average scheme lasts more than four-and-a-half years.
  • The median loss caused by a single person is $145,000.
  • Two-thirds of the incidents were committed by employees who held finance and accounting positions. Who comprises the other third?
  • Our industry is affected by bogus customers and invoices.
  • When collusion is involved (two or more perpetrators), the amount almost quadruples.
  • Small businesses bear the brunt of fraud losses disproportionately. There is a 28 percent higher fraud loss for organizations with fewer than 100 employees.
  • In our industry, “ghost” employees are very common. Either they do not exist or someone continues receiving a check for a terminated employee. Our industry is most affected by this because labor is our biggest expense. Someone should be out at night checking the buildings at least once a week — as well as checking the veracity of the people in the building versus the people on the payroll.
  • The most common embezzlement scheme involves the forgery or unauthorized issuance of company checks. Implement bank statement reviews with examination of checks (particularly endorsements).
  • Look at year-end audits — they should not be adjusted more than 5 percent in terms of dollars and no more than 6 percent or 8 percent in terms of issues.

While speaking to Soviet President Michail Gorbachev, President Ronald Reagan quoted an old Russian Proverb and said “doveryai, no proveryai.” Reagan’s watchwords translated into English, “trust but verify,” have become our motto. Theft can financially cripple your company while you remain unaware or too trusting. Get involved, verify and be proactive. Start looking for unusual symptoms:

  • High turnover in the accounting department.
  • Budgets that constantly move all over the place without approval.
  • Ghost employees.
  • Books closing late and inaccurately.
  • Adjustments to your income statement post-closing.
  • Much lower cash than you predicted on your cash flow projections.
  • Any employee who appears to significantly be living beyond their means or their salary — “champagne on a beer budget.”
  • Your company should have your financial statements completed by the second to third week of the following month. First class organizations close their books within 7 to 10 days. If you are receiving the financial statements after 30 days from month end, you may have a problem.


How do we avoid and investigate misappropriations?

Having the best employees on your staff and the best accounting practices go a long way in minimizing or avoiding fraud inside your company.

Keep your eyes and years open and bring your CPA in when necessary. Don’t be afraid to open “Pandora’s box” by at least doing the following:

  • Firm labor budgets that are regularly checked and not allowed to deviate without permission.
  • Credit checks for your employees who are handling money in any form.
  • Background checks before hiring anybody.
  • Put in a 1-800 number for anonymous reporting of wrongdoings (tips line).
  • No changes in expenditure budgets without prior written approval by you
  • Checks and balances.

Investments in the above will be accretive. They will pay for themselves in your time, your money and your morale.

Make a stand. You don’t deserve this sort of treatment — neither does your company. Get mad! Anyone who is doing this in your company is challenging your intelligence and will continue to do so until they are caught.

Barnett Gershen is the owner and CEO of Gershen Consulting LLC, which consults with leaders in our industry across the country. He successfully sold the ABS Companies in 2005. You can visit his website at www.gershenconsulting.com or call him in Houston at (713) 839-1990. For additional information and a full audit approach, please contact Barnett Gershen.




POSTED ON: 9/8/2016