King Insurance News

Employee Dishonesty Controls

10/10/2009 9:33:20 PM

Every business must develop a system to protect its assets from the dishonest actions of its employees. Listed below are several tips that have been developed to help firms establish internal controls to reduce the possibility of loss. Remember, each business is unique and there are no universal controls that will work for everyone. Use these ideas as tools to establish your own unique controls and safeguards.

Employees may be tempted to steal if they have extensive gambling debts, extravagant living standards, and unusual family expenses or are experiencing substance abuse.

• Unexplained fluctuations in inventory
• Employees who ask for excessive overtime or refuse to take vacation time
• Workers who are good at match and make few, if any, mistakes
• Employees who are always looking into someone else’s job

1. The Accounting System – A well planned system generates clear and simple reports for all levels of management, which clearly points out discrepancies.
2. Audits – Have an annual audit prepared by a CPA.
3. Cash Receipts – All cash receipts should be deposited daily.
4. Disbursements – All disbursements should be made by check. Require two signatures for the checks exceeding $500 or more. Review the daily check register.
5. Purchasing – Establish a purchase order procedure requiring prior approval. Make your suppliers aware of the system. In addition, use pre-numbered purchase orders.
6. Account Payable – Develop a system of accountability and note each invoice as paid to avoid duplicate payments.
7. Bank Statements – Bank accounts should be reconciled by someone who is not authorized to deposit or withdraw. Carefully check the endorsement on all checks for possible forgery.
8. Mail – The CEO or Treasurer should receive and open the mail occasionally.
9. Journal Entries – Thoroughly review all journal entries and be alert to a large number of unnecessary entries.
10. Vacations – Vacations should extend at least two weeks per year.
11. Hiring Practices – Check references and have each new employee complete a special bond application. Also order background checks to be completed.
12. Inventory – Inventory “shortage” is specifically excluded by most employee dishonesty policies. Annual inventories will however, give rise to evidence that theft may be taking place. When used with other evidence, this may lead to reasonable suspension of dishonest acts taking place in the firm. An annual inventory of all property should be conducted as a loss prevention technique.