How can I detect and prevent employee embezzlement or theft?
Implement segregation of duties, regular reconciliations, dual approvals for payments, read-only bank feeds, and automated alerts. Combine controls with random spot checks and strong onboarding/offboarding processes to significantly reduce risk.
On the go? Listen on The Deep Dive — where we dig deeper into this topic: ‘Catching the Cash Leaks—Your Weekly, Monthly Guide to Bank Reconciliation and Fraud-Proofing Your Small Business’. Listen or download.
Why this matters
Employee theft and embezzlement are often gradual and small at first — a disguised vendor invoice, an unrecorded refund, or owner reimbursements classified as expenses. These small leaks compound and can devastate cash flow and trust. Bookkeeping controls are your frontline defense; they also demonstrate to lenders, investors, and auditors that your business is managed responsibly.
Real-world story
A local service company discovered a long-running scheme after setting up monthly reconciliations and vendor verification. An employee had been creating fake vendor invoices and routing payments to a closed account. Once uncovered, the company recovered some funds through insurance and tightened controls, including vendor vetting and dual approvals, preventing future loss. The discovery saved the business from insolvency.
Core controls to implement immediately
- Segregation of duties — Separate roles so the person creating invoices/payments is different from the person reconciling bank accounts and approving payments.
- Dual approval for payments — Require two authorized sign-offs for vendor payments above a set threshold.
- Read-only bank feeds & restricted access — Give the bookkeeping team read-only bank access; restrict transaction initiation to authorized staff.
- Regular reconciliations — Reconcile bank, merchant, and credit card accounts weekly or monthly based on volume.
- Vendor verification & 3-way matching — Match purchase orders, receipts, and invoices before paying.
- Background checks & strong onboarding — Perform reference checks and document authority levels at hire.
- Expense policy & receipts mandate — No reimbursement without receipts; use corporate cards with limits.
- Random spot checks & audit logs — Run unannounced checks and review audit trails for changes/voids.
- Whistleblower reporting channel — Provide anonymous reporting and a non-retaliation policy.
Red flags that may indicate theft
- Unexplained vendor increases or new vendors with no history.
- Frequent refunds/credits processed to the same customer or account.
- Payments to vendors with PO Box addresses or personal emails.
- Missing supporting documents or a pattern of late document submissions.
- Unapplied cash or unexplained adjustments in customer accounts.
- Someone refusing access or resisting review of reconciliations.
- Changes to vendor banking info without proper verification.
Step-by-step prevention plan (30/60/90 days)
- 0–30 days: Run a risk assessment, enforce read-only feeds, set payment approval thresholds, and enable audit logging.
- 30–60 days: Implement segregation of duties, start weekly reconciliations, and require two-person approvals for high-value payments.
- 60–90 days: Automate vendor verification, run random spot checks, and train staff on the expense policy and whistleblower procedures.
Worksheet — Control assignment & monitoring
Use this table to assign responsibility, set frequency, and track status. Copy to a spreadsheet or print for meetings.
| Control | Owner | Frequency | Last Checked | Status / Notes |
| Segregation of duties review | CFO/Owner | Quarterly | Ensure no single-person full-cycle control | |
| Payment dual-approval | Finance Manager | Per payment | Threshold: $1,000 | |
| Bank reconciliations | Bookkeeper | Weekly | Include merchant payouts | |
| Vendor verification | AP Specialist | New vendor + annual review | Verify W-9 and bank details | |
| Random spot checks | Internal Audit/Owner | Random | Document findings |
CSV copy (paste into a sheet)
Control,Owner,Frequency,Last Checked,Status/Notes
Segregation of duties review,CFO/Owner,Quarterly,,Ensure no single-person full-cycle control
Payment dual-approval,Finance Manager,Per payment,,Threshold: $1,000
Bank reconciliations,Bookkeeper,Weekly,,Include merchant payouts
Vendor verification,AP Specialist,New vendor + annual review,,Verify W-9 and bank details
Random spot checks,Internal Audit/Owner,Random,,Document findings
Here’s a ready-to-use CSV you can open in Google Sheets or Excel.
Download the CSV — Controls checklist
Tools & technology that help detect theft
- Audit logs & change tracking — Use software that records who changed entries and when.
- Vendor bank verification services — Use vendor verification (micro-deposit or third-party) for bank changes.
- Expense management apps — Require receipt capture and approval workflows for reimbursements.
- Automated anomaly detection — Use rules/alerts for unusual vendor payments, duplicate invoices, or round-dollar amounts.
Why trust our approach
Giesler-Tran Bookkeeping combines hands-on bookkeeping with internal control design. We’ve uncovered schemes through routine reconciliations and vendor verifications, and we design controls aimed at minimizing operational friction while greatly reducing risk. Our approach balances automation, human review, and clear policies.
Next steps
- Run the 30/60/90 plan above and assign owners using the worksheet.
- Share your vendor list and recent payment history—we’ll run a quick risk scan for free.
- Book a free 30-minute review: https://calendly.com/mrbrian-gieslertranbookkeeping/30min
FAQs
Q: What should I do if I suspect an employee?
A: Document evidence, limit access immediately, and consult legal counsel and your insurance provider. Preserve records and avoid public accusations until facts are confirmed.
Q: Can bookkeeping detect fraud without a forensic audit?
A: Yes — good bookkeeping and reconciliation will often surface anomalies that warrant forensic review; forensic audits are deeper and used for legal action.
Q: Should I confront the employee directly?
A: Not without counsel. Follow your HR and legal procedures to preserve evidence and reduce risk of retaliation or defamation claims.
Not sure where to start? Book a 15-minute triage call here.
Giesler-Tran Bookkeeping • gieslertranbookkeeping.com • 971-200-5158