Good Internal Control Procedures Reduce Employee Theft

There is always the possibility that employees will be tempted to steal but good internal control procedures can reduce theft.

Employees can be tempted to steal for many reasons. Therefore employers must implement measures that deter the staff from misappropriating financial resources or stealing physical items. First, business owners must seek to ascertain why employees may steal, Organizations must also understand what internal control is. Only then will managers be able to delve further into implementing the necessary internal control practices to ensure that operations run efficiently and pilfery can be reduced.

Why Businesses Suffer From Employee Theft

While no employer wishes to know that any member of staff is stealing, there is always the possibility that it could happen. Theft can occur in any organization, both private and governmental. Some businesses have poor management and monitoring and this presents an easy opportunity for theft to occur. There are also cases where an employee may be in financial need and he resorts to stealing or embezzlement. Some staff members may be greedy and an example is the employee who would say "the business makes so much money and the boss pays me so little."

What is Internal Control

According to Cornell University's Professor Emeritus A. Neal Geller in "Internal Control: A Fraud-Prevention Handbook for Hotel and Restaurant Managers" (School of Hotel Administration, 1991), internal control is "the aspect of management that deals with prevention of fraud and embezzlement". The Office of the President of the University of California further shares in their publication "Understanding Internal Controls" that this concept speaks to the "effectiveness and efficiency of operations, reliability of financial reporting and compliance with applicable laws and regulations." Internal control is not implemented to make organizations top-heavy with red tape and long procedures. Instead, these procedures can aid in ensuring the stability of the business.

Implementing Simple Internal Control Measures

How can any business implement internal control? As stated by the University of California, effectiveness and efficiency are essential factors in internal control in the management of any operation.

• Inventory management: Large organizations will have an inventory clerk assigned to the requisition and/or the distribution of items. In smaller organizations, inventory management may be added to the job description of one of the workers. As the theft of any item is a loss to any company, managers must implement inventory procedures that ensure the smooth requisition and dissemination of items while ensuring that items are accounted for.
• Petty cash management: Petty cash can be tempting to staff. While Geller recommends that petty cash use should be minimized, he encourages that managers "separate (the) imprest fund" from other cash and the responsibility be placed to an employee who is not in accounting or record-keeping. He also strongly advocates that there should be a "voucher procedure for disbursements."
• Separation of accounts payable and receivable: Avoid embezzlement and fraud by one or more employees by separating the accounts payable and receivable duties. Of course this is also easier in large organizations. In small businesses where there may only be one employee handling the accounting, it may be impossible to segregate duties. Therefore, business owners must monitor the accounting records. If the owner is not knowledgeable in accounting procedures, an independent firm should be engaged to periodically ensure that there is no embezzlement or fraud.

Employers must ensure that internal control is resonant in any organization. Employees may steal for different reasons but good internal control measures should reduce theft. Business owners can implement inventory management systems, petty cash management and the separation of accounting duties to reduce the likelihood of employee theft.