Human Resources

Arrest Employee Embezzlement

Document and enforce a zero-tolerance fraud policy.

April 08, 2013
KEYWORDS cash , controls , employee
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After nearly three decades working with credit unions to detect and prevent employee dishonesty, I’ve seen the same triangle of causation nearly every time an employee is caught embezzling money: need, opportunity, and rationalization.

The need is usually a personal financial emergency brought on by divorce, an extramarital affair, a child’s financial distress, uninsured medical costs, an addiction, etc.

The opportunity to embezzle usually stems from inadequate internal controls, inaccurate audits, lack of oversight, or abuse of authority.

Rationalization is the psychological technique criminals use to justify their actions. Some folks convince themselves—at first—that they’re just borrowing the money and will pay it back.

Other times, perpetrators believe their employer owes them something. Perhaps they were passed over for a promotion or a raise.

Take these steps to take to detect or prevent embezzlement:

1. Know who you’re hiring

It’s basic: Verify employment and education histories on applications. Contact references.

I recall a large lending loss that could have been avoided had the credit union taken these simple steps before hiring a loan officer. A background check should be performed, to include at least a credit report and criminal record check.

Your bond provider should offer a bondability verification service for prospective employees. You may also want to consider drug screening.

2. Document—and enforce—a zero-tolerance fraud policy

Your board of directors, with legal counsel, should develop a fraud policy, and all employees should read and sign it.

To give the policy teeth, establish a procedure to protect whistle-blowers and encourage employees to report concerns to the appropriate senior manager or supervisory committee. The procedure must keep all reports confidential and guarantee the credit union will not retaliate against whistle-blowers.

3. Establish strong internal controls

A simple system of checks and balances can hold individuals accountable for their actions—and they’d have prevented many employee embezzlement losses I’ve seen over the years.

Here are a few basic safeguards:

Segregate duties. Most lending processes, or processes for handling or accounting for funds, can be broken into separate functions so one employee doesn’t have complete control.

Require individual responsibility for cash. Each employee responsible for a cash supply should have a lockable container (drawer, tray, etc.) under his or her exclusive control.

Have forced dual control of the cash supply. If you use dual control of your money safe, it must be “forced.” That is, you must use a dual control feature on the cash container so two employees must gain access to the cash together.

Examples: Each person has half of a lock combination, or they use a combination lock in conjunction with a key lock so one person has the combination and the other has the key.

Require vacations. Require employees to take seven consecutive days off once per year, and delegate their duties completely to another employee. Watch for irregularities to surface during the employee’s absence.

Audit nonfinancial transaction reports. Review lending reports and pay close attention to payment due dates that were advanced, interest rate changes, payment amount and frequency changes, and multiple address changes to a particular address.

Someone who doesn’t have transaction authority and isn’t involved in the lending process should review this report.







JOETTE COLLETTS is a risk management regional manager for CUNA Mutual Group. For more information about protecting your credit union from fraud, CUNA Mutual customers can visit the Protection Resource Center.

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Great article! Unfortunately, most employees don’t feel valued or appreciated by their supervisors or employers. In fact, research has shown that the predominant reason team members quit their jobs is because they don’t feel valued. This is in spite of the fact that employee recognition programs have proliferated in the workplace – over 90% of all organizations in the U.S. has some form of employee recognition activities in place. But most employee recognition programs are viewed with skepticism and cynicism – because they aren’t viewed as being genuine in their communication of appreciation. Getting the “employee of the month” award, receiving a certificate of recognition, or a “Way to go, team!” email just don’t get the job done. How do you communicate authentic appreciation? We have found people have different ways that they want to be shown appreciation, and if you don’t communicate in the language of appreciation important to them, you essentially “miss the mark”. Additionally, employees need to receive recognition more than once a year at their performance review. Otherwise, they view the praise as “going through the motions”. A third component of authentic appreciation is that the communication has to be about them personally – not the department, not their group, but something they did. Finally, they have to believe that you mean what you say. How you treat them has to match the words you use. If you are not sure how your team members want to be shown appreciation, the Motivating By Appreciation Inventory ( will identify the language of appreciation and specific actions preferred by each employee. You then can create a group profile for your team, so everyone knows how to encourage one another. Remember, employees want to know that they are valued for what they contribute to the success of the organization. And communicating authentic appreciation in the ways they desire it can make the difference between keeping your quality team members or having a negative work environment that everyone wants to leave. Paul White, Ph.D., is the co-author of The 5 Languages of Appreciation in the Workplace with Dr. Gary Chapman.

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