Accounting policies that prevent embezzlement

Embezzlement is a huge problem in the workplace. Needless to say, most businesses that experiences embezzlement and fraud from their employees are more likely to get bankrupt. While ethics and morals are important in business, the lack of it in people is more or less, a fixed nature– one that cannot be altered or restructured for the business’ benefit.
On the other hand, internal control is something which can be implemented to battle not just the problem of embezzlement itself but the entire culture of unethical practices in a workplace.

Internal control is crucial in determining the success of a business. Businesses that implement strict and effective internal control will prevent any kind of embezzlement or fraud. Similarly, there are accounting and managerial policies that help prevent and detect embezzlement committed by employees.

1) Documentation of receipts, vouchers, checks, etc.

The first and foremost accounting policy used in battling embezzlement is the documentation of receipts, vouchers and checks. Such source documents are used in preparing financial statements. Similarly, such documents can also be used to detect embezzlement in the workplace.

By implementing a strict policy of documentation, business owners can easily identify embezzlement and fraud.

2) Regular and surprise auditing

Auditing is one of the primary accounting policies used against embezzlement. Auditing should be done by a separate accountant to assure the reliability and faithful representation of the financial data. More so, regular audits specifically monthly audits should be done.

Furthermore, surprise audits must also be implemented to catch employees involved in illicit acts by surprise.

3) Checks should require more than one signature

Another way to prevent embezzlement in the workplace is by requiring two signatures when issuing company checks. It is also imperative that checks should not be signed by the same employee who prepares the company’s expenses vouchers.

4) Petty cash and bank reconciliation control

Petty cash and bank reconciliation control are also effective ways to battle embezzlement and fraud in the workplace. Petty cash should be maintained at a minimum and must also integrate a voucher system while the preparation of bank reconciliation statements should be done on a monthly basis.

Receipts and other source documents concerning petty cash transactions should always be kept for documentation purposes.

With a reliable internal control system and effective accounting policies, business owners can easily detect embezzlement, fraud and even honest mistakes committed by employees.