30% of Small Businesses Shut Down Because Of This One Issue

According to the Better Business Bureau, nearly 1/3 of all businesses shut down due to embezzlement.

“Embezzlement” is when someone you trusted with access to your finances - an employee, vendor, agent, supplier, partner, family member, friend, etc. - sneaks money from your business under your nose.

It’s heartbreaking because it’s a betrayal by someone you thought was on your side.

And by the time most owners realize money is missing, the damage is already done, and the business is too broke to survive.

The Gaps That People Exploit

Most embezzlers don’t start out wanting to ruin a business. They fall into it through a psychological trap known as the “Fraud Triangle,” which consists of three factors:

1. Pressure: The person is facing a personal crisis (like gambling debt, high medical bills, or trying to maintain a lifestyle they can’t afford).

2. Rationalization: They convince themselves they are doing something okay. They tell themselves, “I’m just borrowing it,” “The company owes me this money,” or “I’ll pay it back before anyone notices.”

3. Opportunity: They see that they’re able to steal the money and get away with it.

These are some of the gaps that embezzlers exploit to steal:

• doing everything alone.

  • This is the #1 gap! If one person handles the cash, writes the checks, and keeps the records, it’s easy for them to steal because no one else is checking their work.

• ghost vendor

  • Ex: An employee creates a fake company in the computer system. They submit fake invoices for things like "office supplies" that never actually happened, approve the payment, and send the money to their own bank account.

• skimming cash before it’s recorded

  • Ex: If a customer pays in cash, the employee takes the money immediately and never records the sale in the computer. To the business owner, it looks like that sale never happened.

• altering invoices

  • Ex: An employee takes a bill from a real vendor (like the electric company), changes the amount to be higher, pays the vendor, and pockets the difference.

• using company credit cards for personal stuff

  • Ex: An employee uses the company card to buy groceries, electronics, or gas, and then marks the expense as "business travel" or "office expenses" in the books.

• fake expense reports

  • Ex: An employee submits fake receipts for lunches, taxis, or hotel stays that they never actually paid for, asking the business to reimburse them for money they never spent.

• ghost payroll fraud

  • Ex: An employee keeps a friend or relative on the payroll system even after they have stopped working there, or creates a totally fake person, and has the paychecks sent to themselves.

• check tampering

  • Ex: An employee steals a check, changes the name of who it is payable to, or writes a check to themselves and signs it using a signature stamp they weren't supposed to use.

How To Protect Yourself Against Embezzlement

1. Regularly monitor and audit your bank statements and finances, whether digital currencies, cash, items of value, etc.

2. Disperse financial tasks between multiple people (and make sure you have access as well), so that no single person can steal and hide the fact.

3. Keep an organized system for record-keeping.

4. Add layers of protection to your financial systems, including extra authentication / approval.

5. Only pay trusted people (partners, vendors, etc.) - make sure you vet them first (a private investigator can help you run a background check).

6. Develop a system where inventory or items are meticulously tracked.

7. Do not ignore small discrepancies, as they can snowball into something huge down the line.

8. Use highly secure payment systems and password managers.

9. Limit who can approve or process refunds.

10. Document everything, including small amounts of petty cash.

11. Don’t delay expense approvals, as delays give room for fake bills to slip in.

12. Start a whistleblowing system - sometimes, everyone else may know about the crime but have nowhere to report it (without becoming a target themselves).

13. Never assume that trusted people will not steal from you. A large amount of embezzlement cases involve close family members.