Thousands of businesses fail every year and many of them fail within the first three years after their establishment. Even the right business may fail at the wrong condition. Accepted and well-known causes of failures may include unexpected global pressures, inattention to customer needs, runaway costs, under capitalization and intense competition. Business failure could also be caused by the lack of cash. Underlying reasons of business failures could also include failure to use professionals, poor record keeping, catastrophic failures of information technology and probably the worst of all, employee theft.
Employee theft may include embezzlement, taking money from the till, walking away with inventory and stealing intellectual property. Only with excellent controls in place, our company can be protected against all kinds of employee theft.
Embezzlement: Embezzlement can take many forms, such as writing extra payroll check to self, writing bogus invoices and writing checks. Employees may also forge owner’s signature, alter checks and abuse check-signing privilege. However, there are ways to prevent embezzlement including by making background check of employees who handle money. Employers should be wary of employees who have serious personal or money problems. Business owners need to regularly request bank statements and check to verify signature amount and payees. If practical, all checks should require two signatures.
Theft of incoming receipts could also be somewhat serious. In this case, employees may divert incoming checks or cash to dummy bank accounts or their own accounts. It is important for us to watch receivables carefully. We may need to investigate personally if customers complain that they don’t get credit for their payments. Suppliers may also get cancelled check copies and we should determine if payments are deposited in our account. If possible, we should have more than one employee for counting and verifying receipts.
Cash thefts could also be quite serious. Employees may “dip into the till”, especially those who work in retail establishments. There are some prevention methods we could do, such as establishing and implementing rigorous cash out procedures. We should be able to verify the amount of cash for the day, by comparing the starting and ending amounts. The cash receipts should be equal to the cash deposits.
Equipment and inventory theft could also threaten our business. We should check whether our equipment or inventory walks out the back door. Prevention should include keeping a good record of any company-owned equipment and their serial numbers. We should tag all company-owned equipments and keep a record of inventory, including incoming and expiration. We should perform periodic physical inventory counts and verify them with inventory levels. It is important to be suspicious of inventory shortages or unusually high inventory purchases.
Intellectual property theft can be caused by disgruntled employees who walk out with irreplaceable intellectual properties, such as formulas and source codes. Our business may suffer significantly if competitors manage to obtain our intellectual assets. The most effective way is to make sure employees are well motivated. We should evaluate their performance and overview about the company.