How Does Embezzlement Affect Businesses?
Embezzlement, or the stealing or diversion of funds from an employer by an employee for his own use, can result in significant financial damage to a business. Beyond the obvious effects, embezzlement can cause other damage to the business. While insurance is available to pay for the financial concerns, the other problems may be more difficult to solve, with effects lingering long after the money has been paid back.
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Destroyed Trust
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Managers and company owners must trust their employees and need to believe that their key people are working for the best interest of the company. These mission-critical people are often looked at like family members by upper management. When company officers discover that someone is stealing from them, they may have a knee-jerk reaction and become skeptical of all of their employees, and be less likely to trust staff in the future. This lack of trust can harm the morale of the business and create a less-productive work environment.
Employee Security
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Embezzlement is also a crime against the employees of the company. Co-workers need to cope with the news that someone they worked with and trusted is a thief. If the embezzlement is significant, an associate may wonder if the company will survive and if he will still be employed in the future. Management can help by giving the affected employees a forum to express their feelings and by assuring staff members that the company is on solid footing, or that insurance is in place to offset the losses.
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Business Reputation
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An embezzler must divert money from the company while attracting minimal attention. One way to do this is for an embezzler to write a fraudulent check to himself for the same amount as a check written to pay a vendor, while discarding the original check. The vendor never receives his payment. This can damage the business relationship with the vendors and possibly damage the business's credit rating.
Prevention
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Businesses can protect themselves from theft. Cash should be deposited as soon as possible and not left lying around. Checks should be hand-signed and not stamped. A limited number of people should have check-signing privileges, and checks for large amounts should require two signatures. Cross-train employees so multiple people can audit each other. Above all, stay involved and bonded with your employees in positions sensitive to theft and embezzlement. It may be more difficult for a person to steal from someone that he knows and cares about.
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