Unless you’re a sole proprietor with zero employees, your business could be in danger of embezzlement. Last year Marquet International, Ltd., an independent background investigative firm, issued a report on US white collar fraud. According to their research, 473 cases of embezzlement occurred in 2011 in which perpetrators stole more than $100,000. While the total number of cases declined by two percent over the prior year, it still resulted in nearly $355 million in employee theft.
Nonprofits are among the businesses facing embezzlement dangers. In fact, according to the aforementioned report, nonprofits and religious organizations accounted for one-sixth of the major embezzlement incidents the firm studied in 2011. The crime often occurs over an extended period, and the amount embezzled can be substantial.
Consider the recent case involving the Lehigh Valley Kashrut Commission in Pennsylvania. Police have charged the nonprofit’s former treasurer with theft by deception, third degree felony, and forgery for writing fraudulent checks from the organization’s accounts.
Review of financial documents revealed that the treasurer had allegedly written numerous unauthorized checks for cash, totaling $25,211, over the course of eight years. The treasurer had written an additional $42,686 in checks made payable to himself over the course of ten years. Checks written to family members totaled $5,200. Checks written to pay personal bills were in excess of $9,000. They also found unauthorized cash withdrawals totaling $2,775. The grand total of the alleged embezzlement? A hefty $85,000.
In another case, police charged the former head of Main Streets, a city-funded Boston nonprofit, with larceny and larceny by scheme for allegedly embezzling nearly $20,000 through unauthorized use of the organization’s debit card as well as using checks to pay for items and services for his personal use.
If you’re a nonprofit organization, there are many steps you can take to protect yourself from potential danger of employee embezzlement. They include:
- Require two signatures for any expenditure. Ensure the person preparing checks is not signing the checks.
- Require receipts, invoices and other documents before cutting checks—originals only, no copies.
- Keep payable and receivable duties separate. Do not allow one person to receive, deposit, record and reconcile the receipt of funds plus authorize payments, disburse funds and reconcile bank statements.
- Never pre-sign the organization’s checks.
- Conduct pre-employment background checks on all employees, especially those receiving and disbursing money
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