Here are some warning signs that embezzlement might be occurring:
* Unusual bad-debt write-offs could be covering up a fraudulent scheme.
* Profit declines and increases in expenses could be a sign that cash is being siphoned off illegitimately.
* A decline or unusually small increase in sales could mean that sales are not being recorded.
* Bounced business checks could indicate that funds are being siphoned out of your bank account.
* An increase in overall sales returns might mean a concealment of A/R payments.
* Inventory shortages could indicate fictitious purchases, unrecorded sales, or employee pilferage.
* Slow collections can hide embezzlement.
There are four basic things that you can do in implementing an internal system of controls:
Screen applicants before they are hired.
Periodically examine canceled checks to see if there is anything unusual.
Take precautions in preparing payroll: have more than one person prepare it, have several different people prepare it, or oversee it yourself.
Have two people sign off on checks, preferably in front of each other.