In recent weeks, we’ve learned about multiple companies in the Portland area that have confronted some kind of embezzlement in their business. Embezzlement certainly isn’t unique to the type of software we sell and support – it can happen anywhere at any time.
Years ago, I was asked to testify to a Grand Jury about embezzlement at a public utility company. “How could that happen?” was the biggest question jurors wanted an answer to. Without explaining to you everything I explained to them, let me just assure you that it can and does happen. So, rather than telling you how to embezzle, this article seeks to provide information that might help prevent embezzlement.
One of the most reliable actions you can take to prevent embezzlement is to use Positive Pay services provided by your bank. Positive Pay requires you, on a daily basis, to upload to your bank any checks written that day. That way, when a check is presented for payment, the bank can compare the information you provided via the upload with several aspects of the check being submitted (these include Accounts Payable checks as well as Payroll checks). Using the check number, the bank typically compares: 1) who the check was written to, 2) the date of the check, and 3) the amount of the check. If any of those items don’t match exactly, the bank notifies the account holder that there could be a problem and holds the check for payment until an authorized individual instructs the bank that it is okay to pay the check in question.
Different banks have different requirements for using Positive Pay. Some banks require a certain format (which can be generated by using a reporting tool in the accounting software), while others require nothing more than an export to an Excel spreadsheet and then uploading that file to the bank. And yes, there is usually a monthly charge for this service by the bank – but it certainly is worth the peace of mind you’ll have using Positive Pay.
In addition to using Positive Pay with your bank, we also strongly suggest enforcing a process by which the person creating the checks in the first place is not the same person uploading the information to the bank (unless that person is a company owner, of course!). Furthermore, you should have a person doing your monthly bank reconciliations who is different than the person creating the checks, so that a reliable comparison can be made between the cancelled check copies and the vendor/employee names identified in the software. Finally, we know that some banks no longer return the physical check copies with bank statements. For clients using those banks, we urge everyone to do ‘spot checks’ or occasional audits against the online check copies those banks provide.
It’s relatively easy to prevent embezzlement from happening – if you use the tools available and adhere consistently to dependable processes. Follow our suggestions above, and chances are slim that you’ll become a victim of this expensive crime.