Employee Fraud—It could happen to anyone.

crime stopper                You don’t have to worry about fraud.  You trust your employees, right?  After all, you only hire the best: the most loyal, diligent, and trustworthy people. Your staff would never steal from you.  Unfortunately, the statistics do not agree with you.  According to the Association of Certified Fraud Examiners (ACFE), small businesses that employ less than one hundred people are “the most vulnerable to fraud and abuse” by their employees.  ACFE found that emerging businesses were much more likely to be victims of theft than larger corporations.  What makes matters worse is that small businesses are unable to absorb losses from theft as effectively as big companies.  The average median loss to a small business affected by employee theft is over $100,000.

Any employee theft, from petty larceny to white collar embezzlement, is considered employee fraud.  Most fraud schemes concern either corruption or fraudulent billing, but the most costly form of fraud is accounting fraud: cooking the financial books.  Any one of your employees could be a thief.  The age group found most likely to commit fraud was the employee group under the age of thirty-five, but even long-time employees are suspect. Older thieves usually steal more money than their young counterparts.  Most thefts are committed by an employee who has been with the company over three years.  Fraud can be executed from the very top tier of management, down to the delivery boy.  It could hit your business from any level.

Fraud is an incredibly big issue for companies, big and small.  It is estimated that U.S. organizations lose 7% of their total yearly revenues to fraud.  Taking the entire U.S. GDP from a recent year into consideration, that is 994 billion dollars!  Almost 25% of thieves stole above one million dollars from their boss.  Fraud scams can continue for years before they are detected.  The typical scam goes two years before the scammer is caught, but that is just the ones who do get caught.  Employee fraud is real and not to be trifled with.

What can you do?  As a small business, you cannot implement elaborate procedural controls, or multiple fancy audits.  It just wouldn’t be cost effective.  Most thieves are found out only because of a tip from a fellow employee.   It may seem like the only way to counteract theft is leaving it to chance, but this is not the case. You can combat fraud in your organization by implementing a few simple, not to mention cost effective, checks and balances.  Do not just stand aside and wait for fraud to come to you.  Take active measures to protect yourself.

The first and most vital protection measure is background checks.  Thoroughly screen potential employees before you hire them.  Make sure you check their criminal and civil history, as well as traffic violations.  You may even want to run a credit check to see if they are under financial strain that would pressure them to steal from you.   Theft is a result of three factors: opportunity, financial pressure, and rationalization.  As an owner, you cannot change their morals, and often their finances are beyond your control, but you can take away the opportunity to steal.  Most studies show that if employees believe they will be caught, they will be much less likely to steal from you.

Another easy to implement, cost effective key control is to separate duties, especially those involved with finances.  Many fraud schemes would be easy to catch if another employee temporarily did the thief’s job.  Have your book keeper take a mandatory vacation, bring in an external auditor to review your accounting, and most importantly never let the same person who signs checks also handle the bank reconciliation.  The separation of key duties is vital to preventing fraud. Do not leave your finances under the care of any one person, no matter how trustworthy.

The last key to remember is just to be involved and aware.  You, the business owner or manager, are the best fraud prevention measure out there.  Get to know your employees.  When a worker is involved in illegal activity, his conduct usually changes.  In order for you to notice suspiciously unusual behavior, you have to know your workforce.  Become involved with your business’s accounting methods.  Even if you do not do the accounting yourself, you should become familiar with the books so you know they way they ought to look.  Keep a close watch on where your money is going.

Another thing to remember is that company records are especially susceptible to tampering.  If you have important documents lying around the office, do not assume that they are safe.  Be sure to shred any of your clients’ personal information such as credit card numbers, bank account numbers, or social security numbers.  If you need to hang on to records, let Tarheel Imaging and Microfilming secure them for you.  We will organize your documents, barcode them, and then store them in a high security warehouse.  You do not want your reputation damaged because an employee pilfered personal documents.  Tarheel Imaging guarantees that your documents will be protected.  Any time you need them, call us up and we will fax them to you, or if you prefer, we’ll deliver them right to your doorstep.  Unsecured company records are an extremely easy way for an employee to gather a wealth (literally) of damaging information.  Do not let that happen.

You don’t have to become some sort of Scrooge.  Nor is it plausible to suggest that everyone’s employees everywhere are crooks.  You probably have an excellent staff at your company. The intent of this article is not to make you mistrust them. Rather, take the words of Ronald Regan to heart: “trust but verify.”  It is far simpler to prevent theft than it is to recover from it.  You cannot afford to be lax any longer.  If it turns out all your employees are clean then that is simply another layer of assurance to help you sleep soundly, but if you do find employee fraud, these small measures could end up saving you thousands of dollars and hours of worry.