Create hurdles to prevent embezzlement

07/06/03
Brigham Young University
By By Stephen W. Gibson Printed in the Deseret News

I remember when I first met him. He looked fabulous in his expensive suit. Every accessory was perfectly coordinated, even the dapper handkerchief in his jacket pocket. He looked great, and his family looked great. Sharp. Impressive.

He introduced himself as a new member of our church congregation who had been transferred to Colorado as the controller of a Fortune 500 company. Wow, I thought, this guy has it all. Why can't I be more like him?

Months later I met him under different circumstances. I was on a jury of sorts, and he was the accused. He had been charged with fraud and embezzlement from a former employer in the eastern United States. His crime had been discovered, and his smooth, impressive persona was beginning to crumble. Within a few weeks his life collapsed around him, and he and his family left the area in haste and disgrace. I was sad for him.

A year or so later, I sought him out to see if I could help him with his rehabilitation. Unfortunately, he was in trouble again. He had been hired in a new financial position, and his pattern of fraud and embezzlement had repeated itself. Another quick relocation to an eastern city prevented the jail time. But to this day, his job instability plagues him.

How sad! A pattern of dishonesty, coupled with the lax employment practices of some employers, have been the ruination of a man who appeared to have everything going for him. Today his future, and the future of his family, is uncertain and insecure.

I asked my friend what small-business owners and entrepreneurs could do to prevent others from doing what he did. His answers were direct, candid and made good sense:

. Segregate accounting duties. He said the accounts payable should be reviewed by a different set of eyes than the individual doing the bank reconciliation. My friend's dishonest approach was to always perform both of those duties himself, so he was able to submit bogus invoices from his own bogus business, and then issue company checks to pay those invoices.

. Don't delegate check-signing. If the company is not too large, the owner should personally sign company checks. The owner should also review the backup paperwork as he signs the checks. The actual writing of the checks can be delegated.

. Never sign blank checks. On the few occasions I have done that, I have always asked for a written receipt to be returned to me. I also write in the payee name, as a minimum.

. Check references on all financial hires. Never hire anyone in a finance or accounting department without checking references. My friend said he has been offered financial positions without references even being requested. It would be wise to check for criminal records as well. Talk personally with past employers before hiring someone who will be handling money.

. Don't treat anyone like family - not even family. Everyone is open to temptation. Don't make it easy for anyone to have access to funds, especially cash, without having two sets of eyes checking things. Sometimes lives are ruined by making it easy for people to do bad things.

My friend says he hasn't embezzled any money now since he came very close to going to prison. I hope I can trust him. He certainly looks honest. Fabulously so.

author1 is associated with the BYU Center for Entrepreneurship. He can be reached via e-mail at Mr. Williams is associated with the BYU Center for Entrepreneurship. He can be reached via e-mail at cfe@byu.edu. .