Eight Tips to Ward off Employee Theft

Since the beginning of the recession not only has fraudulent activity increased, but the amount of money lost to fraud has increased as well.

U.S. businesses lose 7% of annual revenue, equaling $994 billion, to fraud, but small businesses are even more vulnerable, according to a report from the Association of Certified Fraud Examiners.

Small businesses suffered both a greater percentage of frauds (38%) and a higher median loss ($200,000) compared with companies that have 100 to 10,000 employees that only suffered losses between $116,000 and $176,000, according to the report.

Between the recession and loss due to fraud, small business owners are under even more pressure to stay profitable and stay in business. Lawyer, accountant, and identity theft expert Sonya Smith-Valentine lays out eight steps that small business owners should take to keep their assets safe from in-house thieves.

Keep important items locked up. Make

employees who have access to sensitive information lock office doors and file cabinets at the end of the workday. Keep the mailbox locked and limit the keys to the mailbox. Make sure all computers have automatic password protection and instruct users to log off when they step away from their computers. Put passwords on your bank accounts so that only specific people can order new checks.

Check employee references. At a minimum, run a civil and criminal background check on employees, and as your business grows, hire bonded bookkeepers. Even get background information from building management about cleaning crews that have access to your offices.

If an employee has anything to do with money, check their credit report to learn about their debts. “If their credit is really jacked up and they are really hard-pressed for money, they might not be the person you want,” says Smith-Valentine.

Sign your own checks.

If one person is doing all the bookkeeping they might make payouts to companies that you haven’t done business with. They may set up a dummy billing system to make it seem like you received a bill for services and they are just paying the bill. If you sign checks yourself, you are more inclined to pay attention to where the money is going, and employees are also less likely to embezzle, says Smith-Valentine. If the owner isn’t available to sign the checks, then require the signatures of two different employees on checks.
Separate the responsibilities of accounts payable employees. Make sure the person who is paying the bills (i.e. signing checks) is different from the person who is logging the information into the computer. When you split the two job responsibilities it becomes harder to manipulate the data, says Smith-Valentine. Also, don’t allow the data entry employee access to the mail. This will reduce the data entry clerk’s ability to steal a check and cover it up.

Perform random audits of vendors and clients. Let your staff know that once every six months you will choose a business that your company does business with and randomly audit it. Randomly choose checks from your bank statements, find out who the checks were made out to, and then audit that company. Consider hiring an outside accounting firm to do this; it will put the employees on notice that there are people other than you watching them.

Encourage employee watchdogs. Implement a process for employees to anonymously report abuse and fraud. Also let them know that they could be rewarded if information they provide leads to the arrest of an offender.

Purchase employee dishonesty insurance coverage. Taking time to detect fraud and clean up the aftermath is time you could be using to run your business. You can purchase inexpensive insurance plans to help defer some of the costs that occur as a result of fraud or embezzlement.

Encourage employees to take vacation time. A lot of small business owners are happy when their employees work as much as possible. But the embezzling employee will never take off time. They come in early, stay late, and they always want to discourage you from looking up information on your own, says Smith-Valentine. “If something strange is going on, it is probably going to pop up while they are gone.”

Resources:

Fraud Awareness Week

Small Business Fraud Prevention Manual Anti Fraud Resources

Keep Swinging: An Entrepreneur’s Story of Overcoming Adversity and Achieving Small Business Success

United States Secret Service Field Office