Preventing Employee Fraud
April 16, 2015
One of the most serious problems for small businesses today is employee theft. The National Federation of Independent Business says that employees are 15 times more likely than people who are not employees to steal from their employers. The NFIB said that employee theft counts for almost 45 percent of losses at stores. According to the U.S. Department of Commerce, more than 30 percent of business failures are because of employee fraud or theft.
Many business owners are concerned about this serious issue. Employee misconduct can take a wide variety of forms, which include the following:
- Stealing business opportunities
- Fraudulent disbursements
Insurers are alarmed by the high rate of fraud and encourage business owners to be vigilant. The following are a few helpful ideas to prevent fraud.
1. Know employees well. There are several indicators of theft. It is important to be aware of these and know how to identify them. A few examples include:
- Living a lifestyle above salary level.
- Sudden devotion to working and staying late.
- Drug or alcohol abuse.
- Objections to procedures that control inventory, supplies and finances.
- Gambling, borrowing money frequently or writing bad checks.
- Moonlighting using materials obtained at work.
It is also helpful to perform background checks on potential employees. This helps give employers a clearer picture of any illegal activities the individual was involved in.
2. Supervise workers closely. When supervision is not tight, fraud and theft rates rise. This does not mean employers have to watch every move their workers make. However, it is important to know what they are doing and keep track of patterns. Employers should also make sure there is more than one person monitoring the finances for the business.
3. Make use of purchase orders. Different individuals should be responsible for payments, receipts and purchase order preparation. Use purchase orders that have consecutive serial numbers printed on them, which will allow for easier and more thorough tracking of expenses. Incoming orders must also be verified at all times. Control cash receipts using serial numbers too.
4. Use audits and computer security. Make surprise internal audits a regular occurrence. Audits performed by an outside firm should also be conducted once each year. For computer security measures, learn how all systems work. This makes it easier to determine ways employees may funnel money out of the business.
5. Track business checks and inventory. Make sure checks have serial numbers, and use programs such as QuickBooks to track expenses thoroughly. Use security systems to manage inventory. There should be separate parts for shipping, receiving and store keeping. Security devices can be installed to monitor expensive inventory items.
6. Watch accounts receivable. Posting and opening mail should be kept as separate functions. All checks should be stamped for deposit only.
Workers should have a way to anonymously report suspected or confirmed fraud by coworkers. To ensure they are comfortable doing this, offer several appropriate methods. To learn more about preventing or dealing with employee fraud in the workplace, discuss concerns with an agent.