Preventing and Detecting Employee Theft and Embezzlement: A Practical Guide(Wiley Professional Advisory Services)

"If you don't think that some employees have figured out ingenious ways to steal from businesses, read this book. The real-life examples will change your mind." —Joseph T. Wells, CFE, CPA, founder and Chairman, Association of Certified Fraud Examiners "An easy-to-read, but comprehensive step-by-step approach that covers every potential area for employee fraud and embezzlement. Great checklists at the end of each chapter show what steps to put into place for controls and protection. Includes real-life examples that really 'bring the story home.' " —Jean L. Conover, CPA, past CEO/CFO, Jefferson Radiology PC "This book is a must-read for seasoned entrepreneurs as well as those considering entering their own business venture. While developed for small business, the risk detection and prevention methodologies presented by Mr. Pedneault are universal to all businesses. The concise checklists provide ready guidance for establishing a complete system of controls."—Denise H. Armstrong, CPA, Chief Financial Officer, Sea Research Foundation, Inc. d/b/a Mystic Aquarium and Institute for Exploration "This book is a must for every individual owning their own business. Mr. Pedneault clearly articulates the fraud risks that occur in each business system. In the book, he offers practical advice for internal controls and illustrates the risks with real-life examples."—Leonard W. Vona, President, Fraud Auditing, Inc.

Table of Contents:
Preface xiii Acknowledgments xvii Introduction xix CHAPTER 1 Hiring the Right Employees 1 Disclaimer 1 Where Do You Start? 1 Advice of Counsel 3 Application Policy 3 Due Diligence 5 Personal Information 7 Past Employment 8 Education 9 References 11 Criminal and Civil History Checks 11 Credit Checks 13 Hiring Time 14 Hiring the Right Employees: Considerations 17 CHAPTER 2 Know Your Employees 19 Why Is Knowing Your Employees Important? 24 Open Communications 25 What Should You Watch for in Your Employees? 26 Know Your Employees: Considerations 29 CHAPTER 3 Sales, Cash Receipts, and Collections 31 Here’s Where Everything Starts 31 Recording and Tracking Sales 32 Collections 44 Debit Memos and Other Adjustments 48 Accounts Receivable 52 Sales, Cash Receipts, and Collections: Considerations 54 CHAPTER 4 Credit Card Sales, Transactions, and Merchant Statements 59 Processing Sales 59 Reconciling Sales 61 Processing Refunds or Credits 61 Reviewing and Reconciling Refunds or Credits 63 Reviewing and Reconciling the Merchant Statement 67 Credit Card Sales, Transactions, and Merchant Statements: Considerations 69 CHAPTER 5 Purchases, Cash Disbursements, Checks, and Petty Cash 71 Purchases 75 Cash Disbursements/Checks 80 Unpaid Bills/Accounts Payable 84 Petty Cash 86 Purchases, Cash Disbursements, Checks, and Petty Cash: Considerations 88 CHAPTER 6 Credit Cards and Debit Cards 91 Credit Cards 94 Debit Cards 96 Credit Cards and Debit Cards: Considerations 99 CHAPTER 7 Employee Expense Reimbursement 103 Expense Submission 104 Where Are the Abuses? 106 Payment Processing 109 Employee Expense Reimbursement: Considerations 111 CHAPTER 8 Electronic Banking 115 Traditional Banking (In-Person Deposits and Manual Check Writing) 115 Check Processing and Clearing Changes 117 Changes in Bank Deposits 120 ATMs 121 Online Banking 122 What Can You Do? 123 Electronic Banking: Considerations 132 CHAPTER 9 Payroll Processing 137 Payroll Administration: Adding/Changing/Terminating 138 Payroll Processing 142 Payroll Tax Returns 149 Payroll Processing: Considerations 151 CHAPTER 10 Inventory Issues and Controls 153 Prevention: Good News and Bad News 153 Retail Businesses: Items Available for Sale 153 All Businesses: Items for Use by Employees (Supplies, Tools, and Equipment) 166 Detection 166 Inventory Issues and Controls: Considerations 169 CHAPTER 11 Bank Statements, Canceled Checks, and Reconciliations 173 Bank Statements 177 Investment Account Statements 178 Canceled Checks 178 Bank Reconciliations 181 Bank Statements, Canceled Checks, and Reconciliations: Considerations 187 CHAPTER 12 Financial Reports 189 Generate Financial Reports Regularly 190 Why Is the Regular Review of Financial Reports So Important? 195 When to Consider Outside Advice and Assistance 196 Financial Reports: Considerations 202 CHAPTER 13 Safeguarding Your Bookkeeping or Accounting Systems 205 Manual Bookkeeping Systems 206 Computerized Bookkeeping and Accounting Systems 209 QuickBooks Users 222 Safeguarding Your Bookkeeping or Accounting Systems: Considerations 224 CHAPTER 14 Prevention, Detection, and Insurance 227 Timing Is Everything 229 Adequacy of Coverage 230 Responsibilities for a Claim 230 Disclaimer 235 Prevention, Detection, and Insurance: Considerations 236 CHAPTER 15 Your Response to an Identified or Potential Issue 239 A Dreaded Day of Discovery 239 Due Diligence on the Discovery 243 What If It Appears to Be Fraud? 246 Your Response to an Identified or Potential Issue: Considerations 249 Appendix A: Embezzlement Controls for Business Enterprises 253 Appendix B: Who Was Lester Amos Pratt? 291 About the Author 295 Index 297

About the Author :
STEPHEN PEDNEAULT, CPA/CFF, CFE, is the founder and Principal of Forensic Accounting Services, LLC, a CPA firm specializing in forensic accounting, employee fraud, and litigation support matters. Steve is the author of Fraud 101: Techniques and Strategies for Understanding Fraud and Anatomy of a Fraud Investigation, and a contributor to Fraud Casebook: Lessons from the Bad Side of Business, all published by Wiley. Steve has also written numerous articles appearing in local and national media, and is a frequent speaker on the subjects of employee embezzlement and forensic accounting. For more information about Stephen Pedneault, go to www.forensicaccountingservices.com.