The US Chamber of Commerce reported that an employer is 15 times more likely to fall victim of theft by an employee than by an outside person. Interestingly enough, most businesses spend more money and resources protecting themselves from outside theft and fraud.
And when it comes to small business, It is estimated that 30% of small businesses fail due to employee theft since they are less able to absorb such loss versus a large company with more financial resources.
But, it’s not all doom and gloom. All businesses, regardless of size and financial resources, can minimize, and in some cases prevent, employee fraud. Here’s what you need to know to keep your business safe from employee fraud.
Most Common Types of Employee Fraud
- Stealing cash
- Over-reporting hours and inflating work expenses
- Creating fraudulent vendors to forward cash payments into that account
- Stealing sensitive information and trade secrets
Why Are Small Businesses More Vulnerable to Employee Fraud?
Small businesses usually lack the internal checks needed to prevent employee fraud. They do not have the basic accounting controls in place. In addition, they make the mistake of misplacing trust. The old “loyal” employee is given lots of accounting responsibility, while the new employee is kept under close supervision.
Trusting employees is a good thing – but there needs to be checks and balances in place regardless of length of employment, position or any personal relationships.
7 Ways to Protect Your Business from Employee Fraud
- Require stringent background and credit checks as part of the employment screening process. A potential candidate who has never broken the law and is financially responsible is less likely to commit fraud.
- Install computer security measures and understand your system and software. Computer illiteracy makes you an easy target for a cunning employee.
- Segregate all financial related operations. Never allow the person who sends out bills to also collect the mail and prepare bank deposits.
- Use pre-numbered checks, invoices and purchase orders. If they need to be re-written, have the responsible party cross it out and save the check or form. It is easier to complete an audit when all those financial instruments are numbered.
- Perform unannounced internal audits and schedule a thorough external audit once a year. Not only this will help you discover any financial fraud, but it can also serve as a deterrent to a potential crook.
- Enforce a mandatory minimum of 5 consecutive days of vacation. It is usually during this time that fraud is discovered since the wrongdoer is not able to cover his or her tracks.
- Watch for behavioral red flags. Pay close attention to those members of your staff who have a habit of working outside of regular business hours. Although this behavior can be normal, if it is excessive, it can be a red flag. Also, be aware of any sudden lifestyle changes that don’t seem to be supported by a specific life event like a raise, an inheritance, or a spouse or partner changing jobs.
Want more? Check out this article from Profit Point Consulting.
How Insurance Can Help
Although it may not be possible to completely eradicate employee fraud, you can add another layer of defense by purchasing commercial crime insurance. Commercial crime insurance protects businesses against the dishonest acts of an employee, including computer and funds transfer fraud, loss resulting from forgery or alteration of checks and money and securities fraud.
This insurance protection can be the difference between staying in business and filing for bankruptcy.