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Staff Management: Don’t Let Employees Commit Fraud

Your business will be susceptible to threats from all directions—a bad economy, government regulations, fickle clients and more. Sadly, one of the most dangerous threats comes from within your own organization—your employees.

It’s been said that the typical business loses more than 5% of its annual revenue because of employee fraud.

Don’t let your company—and your profits—be victimized.

Three Types of Fraud

Before you can detect fraud schemes, you need to know the most common practices. They are usually divided into three categories:

  • Asset Misappropriation—This can be something straightforward like stealing cash. However, it also includes the theft of non-cash items—like staplers and color copies (don’t laugh…those things can cut profits too!). Asset misappropriation also includes making fictitious reimbursement claims.
  • Financial Statement Fraud—This type of fraud includes omitting or altering information in financial reports. An employee might also attempt to hide liabilities.
  • Corruption—While less common than the other two types of fraud, corruption is still dangerous. It includes the acts of bribery and extortion.

It doesn’t matter what size business you operate, the type of products you sell, or the country you live in; every business is susceptible to fraud.

Fraud specialists estimate that criminal activity usually lasts an average of 18 months before being discovered. Imaging how much that prolonged activity could damage your business!

Since recovering losses is so difficult—and sometimes impossible—it is best to detect and prevent fraud from the very beginning.

1. Get to Know Your Employees

The better you know your staff, the more likely you are to detect suspicious behavior.

One of the biggest indicators of potential fraudulent activity is the change in an employee’s attitude. For example, an employee who feels underappreciate might be showing outward signs of anger and resentment. And fraud—as an act of revenge—is often the outcome.

2. Let Everyone Know

Your employees need to know you have a fraud detection and prevention system in place. This will help in two ways.

First, potential criminals will know you are keeping an eye out for potentially fraudulent activity. This might act as a deterrent.

Second, employee tip-offs are the most common form of fraud discovery. Let employees know you encourage their input if coworkers are acting suspiciously. Consider implementing an anonymous reporting system.

3. Document and Segregate

Keep track of who does what. The more you segregate a task, the less the risk of fraud. For example, one person might be in charge of collecting payment, but another should handle the deposit.

Also, make sure you keep accurate records of your finances. Checks and invoices need to be written in successive order. Numbering gaps need to be explained.

Toss out the signature stamp. Also, for checks over a certain amount, it’s best to have two signatures for deposit.

Lastly, be on the lookout for new vendors. Syphoning off funds to a new (non-existent) vendor is an easy way to lose profits.

4. Note the Workaholics

Many employers are tempted to pat an employee on the back who hasn’t missed a day of work during the past decade. But to those in the know, such activity is suspicious.

Perhaps that employee has been engaging in fraudulent activity and is afraid someone will notice if they are away from their desk for a few days.

5. Be a Good Boss

There are several common sense activities that go a long way toward fraud prevention.

  • Encourage communication at all levels
  • Let employees know what is expected for promotions and advancements
  • Have fair employee policies (and enforce them universally)

6. Hire Professionals

There are lots of professionals who can help you keep things on the straight and narrow. They range from general services—like those that offer fraud protection—to more specific. For example, you might want to hire a tax professional to review your payroll accounts.

If you don’t want to outsource your fraud protection services, hire an in-house specialist—someone to keep an eye out for all types of scams.

Small business owners fight hard for every profit dollar earned. Don’t let your naïveté make you an easy mark for unscrupulous employees. Stay on guard and prevent unnecessary profit losses from happening.

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