Watch for red flags to protect yourself
You might not believe a trusted employee would ever embezzle from your farm operation. Yet the likelihood is high.
Guarding against fraud is an owner’s responsibility that starts with understanding and controlling opportunities for financial theft.
“Less than 50% of embezzlement cases are ever reported,” says Mark Brady, a CPA and partner with the accounting firm of Cooper Norman in Twin Falls, Idaho.
Many businesses fail to report embezzlement because they don’t want to deal with the publicity or the cost of litigation. “Another reason is they want it to be over and done with because they know they’ll never collect,” he adds.
Risk Is Substantial. In a survey of 2,000 employees by LogRhythm, a security intelligence company, 23% admitted to accessing or taking confidential data from their workplace, and one in 10 do it regularly, Brady reports. Most acquired data about colleagues’ salaries and bonuses. Fully 94% have never been caught.
Employees who engage in embezzlement are often driven by incentives or pressures. These can include excessive spending to keep up an appearance of wealth or by other outside financial strains. They might be involved in illicit romantic relationships or have addictions to alcohol, drugs or gambling.
Embezzlers can be anyone, including old and new employees, owners and managers. Nearly 63% of all embezzlers are women, but the dollar amount of cases with male embezzlers is nearly double that of females, Brady says. The average age at which embezzlement starts is 42.
Embezzlement occurs with opportunity. “Your business may have a lack of internal controls,” Brady explains. “Your office may provide sufficient access to assets and information that allows an employee to believe fraud can be committed and successfully concealed.”
When caught, embezzlers often rationalize by saying they were borrowing the money temporarily or they were underpaid.
Key Indicators. Brady says signs an employee or family member might be embezzling include:
- Your company generates the same amount of revenue but suddenly makes less profit.
- It becomes hard to locate reports for specific days.
- Employees take too many days off.
- Conversations become hushed when you enter a room.
- Inventory counts are more difficult to tally.
- An employee’s lifestyle does not make sense. For example, a modestly paid worker might start driving an expensive vehicle.
- You notice frequent and significant transactions that are hard to audit.
- An employee places undue emphasis on earning projections.
- Your accounting team is too lean.
- You have a decentralized organization with inadequate monitoring.
As the owner of your farm operation, you should sign all checks, including payroll, Brady cautions. Additionally, you should require employees who work in high-risk areas take vacation. Brady references the case of Rita Crundwell, who embezzled $54 million in city funds over more than two decades in her role as city treasurer for Dixon, Ill. Crundwell never took time off until her employer insisted. It was during her vacation that another employee discovered her embezzlement.
“You should insist that good audit trails be created for all transactions,” Brady says. “Allow employees only limited access to accounting records and personal information.”