Startup founders, let’s dive into a topic I hope you never have to encounter, but an important one to look at - ways employees steal from a startup. This article will explore the top eight ways employees can steal money from a startup. We will also address how to prevent this from happening at your startup. 

Top Ways Employees Steal from a Startup:

  • Cash Advances - $200 - $300 at a time, no transaction record
  • Book a bunch of hotel rooms, submit the receipt, and then have the employees pay for the rooms themselves
  • Putting their wire information on a customer’s invoice
  • Collaborating with a Vendor to overbill and then split proceeds as a kickback
  • Paying their credit card with company money
  • Buying Dinners, Hotels, etc. on the company credit card that are not authorized
  • Buying Clothes on Company Credit Cards
  • Forging of Checks - not as common anymore
  • Company Card set as default on employee’s Amazon, Uber, Lyft account

Cash Advances

The first theft instance we will explore is cash advances. Never let people have cash advance access to the bank account. You’ll see $200 or $300 advances at a time take place. This is why having virtual cards and issuing credit cards is the right way to go. However, occasionally we’ll see someone who lets an employee go to the bank and take money out. 

Do not ever let that happen. 

Hotel Rooms

Another way is you see this happen in the booking of hotel rooms. We had an employee of a client book many hotel rooms then submit the receipt as if they had paid for those hotel rooms. They booked ten hotel rooms, canceled a few, but they invoiced the company for reimbursement for ten hotel rooms. 

It is essential to have your employees submit not just the invoice but not the final payment invoice or receipt. This way, they cannot trick the system so-to-speak.

Incorrect Wire Information

Another scary employee theft example is that they put their wire information on an invoice instead of the customer’s wire information. 

This is wire fraud. This is a federal crime, but people do it. So you have to be careful. 

Sometimes, the employee will collaborate with a vendor to overbill a company and kick back on the backend in cash. 

This is why it is crucial that you look at all the invoices that you are paying, approve everything, and even have a second set of people approving invoices. 

Paying their Credit Card with Company Funds

Another example is when an employee pays their credit card with the company’s funds. This is something we see quite a bit in very early-stage companies.  

A company will then bring us in to look through the books and reconcile everything. 

Don’t let that happen. Audit and also reconcile everything every month.  

Personal Expenses

Sad to say, but another example is when employees pay for personal expenses with company funds. They may buy dinners or pay for hotel rooms on the company card. 

This can tend to blend in at a more prominent startup, and it is harder to catch. It’s harder to know precisely what was warranted. Maybe there was a conference, and someone books an extra hotel room or does it out of the blue. 

Do not let that happen. That’s why check all your statements, QuickBooks, and the general ledger every single month. 

Forging Checks

Another one that doesn’t happen too often anymore but can happen is the forging of checks. So with bill.com and some of the other kinds of payment tools now, this happens much less often. 

But, you still hear stories of a company checkbook on a desk, and someone pulled a check out and just wrote themselves a check or a vendor a check and then took it back. 

Company Card Defaulted as Own

We repeatedly hear where employees accidentally have the company credit card defaulted in Amazon because they’re buying tons of stuff in their logins throughout the week. 

The theft comes in when they buy personal goods on Amazon on the weekends and hits the company credit card. 

So these are two, again, I’d call these accidental, but these are two areas to look into. 

Scrutinize your Amazon purchases, monitor your Uber and Lyft expenses because you could accidentally pay for employees’ stuff where they didn’t switch the default credit card over. 

So let’s talk about how to prevent employee theft. 

How to prevent employee theft:

  • Use a tool for payments that have both an approval & audit flow
  • Strict expense policies
  • Limits on company cards - consider looking into virtual credit cards
  • Work with an outside accounting firm will be critical in identifying the fraud
  • Regularly run budget to actuals 

We talked about forging checks, use bill.com, Airbase, or something that can have payments going out with an approval flow, like an audit flow so you can see who approved everything. 

You always want to have a second set of eyes supporting or paying. Strict expense policies, like having a written expense policy, are beneficial. 

Setting limits on credit cards or debit cards or whatever you’re letting people use to pay things would be helpful. 

We like Brex, Ramp, Airbase, or Amex’s entrepreneur card because they let you set dynamic limits. For instance, you can give an employee a credit card on the company, but put a meager limit, like $500 or a thousand dollars. 

This way, you’ll catch the theft, or they’ll know that you’re watching and know there’s a low limit and won’t try to take advantage of it. 

I talked about this a little bit, but two approvals for every considerable expense are essential. Some companies have a policy like anything over $500 needs email approval with the CFO copied. Again, bill.com and some other tools have support flows in them, which is very helpful. 

Another way to prevent this is working with someone like Kruze. By having an outside accounting firm, the CPAs at the firm are the ones who catch the fraud, not the management team, because they don’t know what to look for. 

One more way to prevent employee theft is doing a regular budget to actuals. 

This is a service we offer at Kruze, but you can do this yourself, too. It’s straightforward to do this on your own as well.

So, I hope this video is helpful as we’re trying to educate you and help you avoid some of that heartache. So contact us at kruzeconsulting.com if you have any questions. Thank you.