Thursday, September 18, 2014

Research Q of the Week: Three Steps to Prevent Employee Theft (9/18)

Question: I don't want my city to end up in the headlines. What can we do to prevent employee theft? 

Answer: It’s an uncomfortable topic, but employee theft occasionally occurs in Minnesota cities. There are generally three key elements that lead an employee to steal: opportunity, financial pressure, and rationalization. Most people who commit theft against their employers are not career criminals. Instead, they are trusted staff who have no criminal history and see themselves as ordinary, honest people caught in a bad situation.

The best way for cities to stop employee theft is by reducing the opportunity for employees to steal. Here are three ways to do this:

1.) Segregate duties
Don’t give all the responsibilities for a job function to one person. For example, one person should be responsible for preparing and sending utility bills, a second person should be responsible for recording payments and reconciling bills with collections, and a third person should maintain custody over the funds and deposit them in the bank. Small cities with limited staff may be able to use city councilmembers to help segregate duties. For example, a city councilmember may be able to make deposits or to reconcile monthly bank statements.

2.) Adopt internal controls
It’s important to establish good financial procedures for employees to follow and to provide evidence for an audit trail. Here are examples of some simple internal control procedures:

•    Endorse checks for deposit as they are received.
•    Make daily deposits.
•    Reconcile receipts with deposits.
•    Reconcile bank statements monthly.
•    Avoid pre-signing checks.
•    Rotate employees who collect cash.
•    Require a receipt when cash collections are given to another person.

3.) Establish an environment of accountability

This means not only creating internal control procedures, but requiring everyone—no exceptions—to follow them. Management should lead by example.

For more information, see the LMC information memo: Safeguarding Your City Against Employee Theft.

Written by Susan Naughton, research attorney with the League of Minnesota Cities. Contact: or (651) 281-1232.

This blog post conveys general information. It’s not legal advice. Please check with your city attorney before acting on this information. 

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