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DAM, SNELL AND TAVEIRNE, LTD.
Certified Public Accountants

 "Preventing Employee Embezzlement" Internal Control Warning Checklist

One result of today's frenzied economic times is an increase in employee embezzlement. Documented local instances include theft of cash collections (covered by lapping of accounts receivable), writing of additional payroll checks, and diversion of invested funds through improper and unauthorized bank transfers. Embezzlement has taken place at all types of employers from retailers to government bodies.

Upon discovery, funds lost through defalcation can sometimes be recovered from the perpetrator, banks, clearing unauthorized transactions, or surety bond coverage. Without detection, however, the loss will generally continue unabated. Action on your part is necessary to prevent such incidents from taking place.

The checklist below is designed to help you identify those practices which constitute weaknesses in your system of internal controls. Assets should be safeguarded by limiting access to important documents, inventories, and supplies. Certain accounting duties should be segregated among employees to maintain system checks and balances.

Bank reconciliations and cash procedures should be monitored. Proper review of supporting documentation prevents unauthorized transactions. Knowing your employees helps identify behavioral changes which might be indicative of embezzlement.

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"Safeguarding Assets" trans.gif ("No" indicates a potential problem)

1. Are blank check stocks and signature stamps secured? Yes No

2. Do you restrictively endorse all checks when received? Yes No

3. Do you deposit your cash and checks daily? Yes No

4. Do you maintain and monitor a list of property
subject to theft?		 Yes No

5. Do you maintain physical controls over
inventories, shipping, and receiving areas?		 Yes No


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"Segregation of Duties" trans.gif ("Yes" indicates a potential problem)

1. Is the person handling your cash also responsible for
recording the cash?		 Yes No

2. Is the person ordering materials also responsible for receiving? Yes No

3. Are two or fewer persons responsible for the accounting function? Yes No

4. Is your review of the financial statements sporadic? Yes No

5. Is your review of the financial journals sporadic? Yes No


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"Bank Reconciliations" trans.gif ("No" indicates a potential problem)

1. Do you review canceled checks and endorsements monthly? Yes No

2. Do you compare payroll checks with employee records? Yes No

3. Do you question funds transferred between bank accounts? Yes No

4. Are bank reconciliations prepared on a timely basis? Yes No

5. Do you review bank reconciliations monthly? Yes No

6. Do you verify reconciling items? Yes No


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"Supporting Documentation" trans.gif ("Yes" indicates a potential problem)

1. Do you ever sign blank checks? Yes No

2. Do you ever sign checks without reviewing invoices, etc.? Yes No

3. Do you ever sign checks without canceling paid invoices? Yes No

4. Have funds ever been transferred between accounts
without verification?		 Yes No

5. Do you ever sign checks for new vendors without knowing or
verifying their name and association with your company?		 Yes No


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"Knowing Your Employees" trans.gif ("Yes" indicates a potential problem)

1. Are any of your employees possessive of their work records
and reluctant to share their tasks?		 Yes No

2. Are any of your employees apprehensive about vacations and
time off, while always being the first in the office and the last out?		 Yes No

3. Are any of your employees living beyond their means, or in
personal financial difficulty?		 Yes No

4. Do any employees have a possible substance abuse problem? Yes No

5. Do you hire employees without checking references? Yes No

6. Do you permit accounting personnel to work longer than a
year without taking a vacation?		 Yes No

7. Do you have any accounting staff or key personnel who have
not been secured with a fidelity bond?		 Yes No

trans.gifIf you have questions, contact Doug Taveirne at 847-587-3022.