Small Businesses Vulnerable To Embezzlement

Athens, GA, Sept. 16--When Michael Blanton, president and owner of Dalton Carpet One in Athens, found out that an employee had been embezzling money, he was both surprised and angry, according to the Athens Banner-Herald. He couldn't believe that someone he had entrusted with the retail floorcovering store's bookkeeping would betray that trust. The employee, Sylvia Krass, embezzled some $266,000 from the company from 1996 to 2000, mainly by writing checks to herself and disguising them as payments to vendors. She was sentenced to 30 years in jail in August 2001. "If you don't take the right precautions it can (happen to anyone)," said Blanton. "It happens a lot more than people know." John Maynard, director of the University of Georgia's Small Business Development Center, said that while any business can fall prey to embezzlement, it's more likely in small businesses. "Larger companies are aware of the problem and try to address it through infrastructure and organization," he said. "Whereas smaller companies often can't afford to have separate payable and receivable departments." According to accounting expert Charles Mulford, director of the DuPree Financial Analysis Laboratory in the DuPree College of Management at Georgia Tech, the best way to prevent embezzlement is to ensure that the person writing checks for a business isn't also the person who gets the business's bank statements. "If you've got sufficient separation of duties, these are very easy to catch," said Mulford. "If not, these are very easy to do." According to Mulford, embezzlement is primarily done in one of two ways--depositing money intended for a vendor into a personal account, or writing checks from company accounts. The key to preventing both, Mulford said, is ensuring that there is more than one person involved in the accounts payable and accounts receivable functions. "If you're writing checks, someone else should be getting the checks from the banks, reconciling the checks and seeing who these checks have been written to," said Mulford. At Dalton Carpet One, Blanton had many of those safeguards in place. For example, there were a total of five people involved in accounts payable and receivable. That wasn't quite enough to foil the elaborate fraud perpetrated by Krass, who was head of bookkeeping. According to Blanton, Krass would write a check to herself, but would show that the funds were going to various vendors. When the canceled checks came back from the bank, Krass, who would be the first person to see the records, would destroy them. Blanton declines to reveal how he caught on to the embezzlement, other than to say he did some looking into the company's finances and uncovered the fraud. He recommends that owners have the bank statements sent to either their home or a secure address where they can be the first person to see the transaction records. Also, he said, employees should have to make a detailed list of checks, and that list should be compared to the deposit slip and bank statement. Additionally, checks written to the company should come to a secure location, ensuring that the owner or president can check to see that funds received match the bank statement. Apparently, small companies are beginning to take note of the possibilities for embezzlement.