How To Discover Embezzlement

How to discover embezzlement takes diligent effort to keep an eye out for irregularities. Embezzlement can happen at any level; from personal advisors to bank personnel. Anyone with access to your accounts can embezzle your money. It seems like a major pain to keep track of your money when you pay good money for others to do the same thing, but the philosophy of "better safe than sorry" applies when money is concerned. 

You'll need a few basic things, including;

  • copies of monthly bank statements, including interest and dividend statements
  • access to checkbook registers and copies of checks
  • debit account statements
  • calculator
  • access to your physical or electronic books
  1. Develop a watch program. Figure out a system to check monthly bank statements, interest and dividend statements, checkbook registers, debit account statements and the books. Make up a checklist that you can use each time you check your money.
  2. Ask questions. As you review your paperwork, don't be afraid to ask questions. You may have to pay for the time to get the answers, but figure you only need to get the information once. Take notes or record the information, in case you need to refresh your knowledge in the first few months of the program.
  3. Follow the same review format each week. Use the check sheet and follow the same pattern each week as part of how to discover embezzlement. The first few months will be a chore, but after that, it will be a breeze each month to do the checklist. Payments made each month will be automatic to check for embezzlement. Any strange payments will be featured and easy to match to checks and charge card statements.
  4. Follow cash carefully. The part-time payroll officer and accountant for a major romance novelist was sent to the big house for embezzling nearly one cool million from the novelist's accounts. The fraud involved writing checks made out to "cash" and paying herself a higher salary than the novelist expected. 
  5. Make sure the books are bona fide, real deals. Sneaky embezzlers use dual books. One for you and one for anyone else looking for fraud. If something is exposed, your books suddenly disappear and the substitute books come out showing the embezzled funds going into odd places. Purportedly, with your full knowledge. Figure out a way to authenticate the books each month. This might involve signing the books over part of the formal print or putting a thumb print on an extremely visible part of the books.
  6. Look early and often. If something doesn't feel right or your business advisors are acting strange, check it out immediately. Many victims of fraud see flags or hear stories that don't jibe but don't act at the time. By the time the investigation takes place, the bucks are long gone. 
  7. Yell loudly at the first indication something is not right. If you suspect problems, bring in an outside, independent auditor to check things out. A regular independent looksee is advised, even for totally legitimate operations. Don't set a firm date each year, roll the date so a potential embezzler can't cover the loss or cook the books in time for the outside audit. 

Warning: Fraud may involve more than just cash and checks. Embezzlement of frequent flier miles and cash for reward points can add up to a tidy amount, especially when the embezzlement takes place every month. 

Reference:

McMillan, Edward J. "Policies & Procedures to Prevent Fraud and Embezzlement: Guidance, Internal Controls, and Investigation." John Wiley & Sons, 2006.

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