Embezzlement Headlines Show Crime Can Happen Anywhere (Even Your Office)

Just last week, a couple of Kansas City companies showed up in headlines related to a situation no company wants: embezzlement.


In one case, a CFO embezzled millions over a period of nearly 12 years via his company’s credit card and PayPal accounts — all while making layoffs to cut costs.


In another, two DST Systems Inc. employees allegedly embezzled nearly $400,000 by taking scrap from a Kansas City data center renovation project and selling it to recyclers.


It can be chilling for small business owners to consider such scenarios. You’d like to think you can trust your people — those you pay to help advance the business you’ve worked so hard to build. But a key to avoiding embezzlement is realizing that, like the companies in those Kansas City Business Journal articles, it could happen to you.


Small businesses lost almost twice as much per scheme to fraud, according to a 2018 study on Occupational Fraud and Abuse by the Association of Certified Fraud Examiners. Overall, the median loss in fraud schemes was $130,000, with more than a fifth of losses topping $1 million — and most victims didn’t recover anything. The median duration of a fraud scheme was 16 months.


Fortunately, there are simple safeguards that can help deter embezzlement — or at least make sure it’s caught quickly and losses are minimized.


One strategy is to make the bank your ally — put all incoming money into a checking account, and withdraw any departing money from a checking account, according to Entrepreneur. This way, the bank has an independent record that’s out of the hands of any company employees. Complete the circle by having everything reconciled to the checking account monthly and, as the owner, reviewing it promptly.


Divide roles so that multiple employees have to be involved when money leaves the business, Entrepreneur advises. And a business owner should randomly look over various financial statements, as well as periodically have a third party do a spot check of books and accounts (it doesn’t need to be a full audit). Such steps will make any potential embezzler think twice and should help catch any problems quickly.


One of the things that makes embezzlement so difficult to spot is that most perpetrators are first-time offenders and have clean employment histories — they may seem like model employees. But there are common warning signs, many sources suggest. Employees who seem overly territorial or controlling, never take time off work, seem to live beyond their means, are oddly cozy with vendors or customers, and/or face financial troubles may be worth watching.


It isn’t clear what will happen with the DST employees, both facilities engineers, who were indicted last week.


The 34-year-old Scarbrough International Ltd. executive faces five years in jail and about $1.9 million in restitution — plus a partial amount he already paid — but it’s unclear how much the company ultimately will recover of the $6.5 million he embezzled.


Learn from those who have suffered from embezzlement — be vigilant, implement safeguards, and verify the trust you put in your people. And for the tough people questions you face, Contact People People today.