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3.How to Protect Your Business From Embezzlement & Fraud

Air Date:

Jul 4, 2022


54 Min


Something that no business owner should have to recover from

So, what can you do to make sure that your business is protected so you don't have to go through the pain of recovering from this?

Check out this week's episode as we discuss How to Protect your Money and Business from Embezzlement.

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Episode Show Notes :


When it comes to running a business there are a lot of factors that you have to keep up with and unfortunately, unethical people know this and they try to take advantage of you. Lately, I have heard several horror stories of business owners that have had staff, admins, accountants, and financial advisors steal money from them and some have reported having close to $100,000 stole from them and they had no idea that it was happening.

I don’t say this to put fear in you or so you will start treating everyone like they are guilty of stealing from you, I say this because there are some common very practical things that you can do to help protect you and your business because when I think about every one of those situations a few simple things could have been implemented to help.

First and foremost is access, you really need to examine how much access does this person really need. For example, our firm provides bookkeeping and CFO services for other businesses and one of the things that I tell every client if at all possible we only need “View Only” access to your account. My team and I are not hired to spend your money, write checks, receive money on your behalf etc. Our job is to view the financial data, organize it and analyze it in a way that helps you understand what is going on so you can make better money decisions.

  • Do an audit of everyone that has access to your bank accounts and ask yourself does this person need this level of access to my money?

Second would be limitations levels. Sometimes you will need to grant staff and other team members access to some accounts but in those situations, you should check with your financial institutions to see if you can place limits on the amount of money this person(s) has access to handle.

  • Credit cards - check to see if your credit card company will allow you to put limits on the cards that your employees hold in the name of the business

  • Bank accounts - check with your financial institution to see if the bank can set a limit for how much this person can access or transact in a day

Third would be approvals - if people other than yourself have access to write checks or spend money that belongs to your business you need to have an approval process for amounts that exceed a certain limit. The limit that you place may vary depending on the person’s role, and responsibility level/authority so consider who the person is, what they do, and then create a simple policy that any amount over XYZ must be approved by two or more people. 

  • Create an internal policy and specify the limits

  • Check with your financial institution to ensure that your signature authority list is updated (you don’t want former employees or former partners on your authorized signers' list)

Fourth expense reports - if employees are spending money on behalf of the business it is very fair and a best practice to require them to submit an expense report that provides a receipt and details of what they purchased before the business will reimburse them.

  • Have an internal reimbursement policy that requires approval before funds are released

  • If you have credit cards for staff consider having the card issued in the employee's name so the employee is even more incentivized to submit a reimbursement request so the card balance can be paid.

Fifth is managing inventory - far too many businesses lose money because people are stilling the inventory. 

  • Gross margin analysis - each month you should be able to compare Revenue - Cost of Sales = Gross profit then take Gross Profit divided by Revenue and you will get a percentage. Do this calculation for multiple months and if you see the percentage drastically up or down you should look into this

Lastly reporting - this is often a very overlooked safeguard but it is probably the simplest one to implement:

  • Work with your bookkeeper or accountant to review the list of vendors that the business is paying (for example one company was cheated out of $10,000 because an admin staff person was running subscription services and Amazon purchases through the businesses bank account, had the owner or leadership team did a review of the expenses by vendor it would have popped up that the company was paying for 5 Netflix accounts, NFL gameday,  and about $400 of Amazon purchases on a regular basis)

  • Create a budget for your business and have your bookkeeper or accountant regularly report the budget versus actuals (anything that is a major variance should be explained)

  • Work with your bookkeeper or accountant to set up monthly cashflow reporting - when it comes to cashflow the formula is simple

    • Beginning balance + Cash received - Cash spent = Ending Cash 

    • Compare your revenue to Cash Received + Accounts Receivable 

    • Compare the cash spent vs the expected expenses + debt payments + any major purchases 

    • With these pieces you should be able to clearly see any major cash withdrawals or cash irregularities and that becomes a sign of something you should look into.

Overall there are some simple steps that you can take to protect your money and as we have seen from many horror stories a little bit of planning and simple procedures could have avoided a world of frustration and financial loss.

Key Takeaways:

  1. Your accountant should be helping you understand what is happening with your money

  2. Your business is never too small to have financial safeguards in place like- spending limits, limits on access to cash authority, etc

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