Posts

Businessman upset by the accusations of colleagues
For business entrepreneurs and small business owners, employee fraud can be a difficult subject and certainly an intimidating task. When it comes to the prevention of theft, stealing, larceny, shoplifting, and embezzlement, which all come under the umbrella of fraud, employers need to come up with a sensible plan and execution strategy to protect their business from potential internal and external threats. According to studies, employees can change the entire fate of the company they are working for by remaining true and honest with their profession. However, those who intend to steal from you need to be held accountable for their fraudulent behavior. A precedent for the company must be set, which will help prevent future theft and fraud.

In the US alone, businesses lose about $70 billion in annual revenues and profits due to employee theft and fraud. This indicates that employee theft is inevitable. However, businesses can minimize potential threats by devising theft prevention techniques and implementing systems that will help them counter impending threats, either internally or externally. Employees who intend to steal from you find sneaky ways to cheat or steal and will take advantage of the loopholes an organization may have. They are well aware of company’s processes and systems that it uses to manage its business affairs.

It’s Never Easy to Find the Right Person Involved in Fraud

Small business owners counter a lot of problems regarding employee theft and fraud throughout the course of their business journey. Business owners must play a predominant role in minimizing theft threats and danger that may hurt the integrity and long-term operations of their business. However, catching those involved in theft or other fraudulent activities is no easy feat. 

Why Employee Theft Happens

There are numerous reasons why employee theft and fraud may happen. It may occur due to personal reasons like gambling, maturing debt, emergencies, personal issues with the owners of the company, or perhaps due to the opportunity at hand. Besides going into the details of employee theft and what makes someone steal from a company, we will briefly explain it with the 10-10-80 rule.

It states that 10% of employees would never steal from a company, 10% would take any opportunity at hand, and 80% would access the opportunity by examining their needs and determining whether or not they should commit the act. This 80% is what companies need to prevent from happening through effective preventive measures and techniques.

What to Do When You Discover Employee Theft or Fraud

Small businesses are often reluctant to involve the police when they discover employee theft or embezzlement happening within their company. There are four choices to make when you catch an employee stealing from your company. You can follow disciplinary procedures and fire your employee, call police for criminal offenses and proceedings, call your attorney, or call your insurance agent.  

Disciplinary Procedures

If you have evidence of employee fraud, you can simply take actions stated in your disciplinary procedures. You can recover your losses by asking them to return what they stole or compensate the company so that legal procedures are not pursued, which may result in jail time. Once you recover your losses, you can fire the culprit or not—as you deem appropriate.

Call Your Attorney

You can also call your attorney for proper legal proceedings against the culprit. They may help you file a lawsuit against the perpetrator. Also, they may help you find and hire a forensic accountant who will review and investigate your bookkeeping and accounting records in order to file a strong claim against the perpetrator.

Call the Police

Once you’re done working with your attorney, calling the police to report employee theft or fraud seems entirely appropriate. However, having the police show up at your place of business may disrupt your operations, which means additional disruptions to your business such as taking statements from coworkers and employees. You must be very careful to make the right choices for the fate of your company.

Call Your Insurance Agent

If your business is insured against employee theft or fraud, remember to call your insurance company to recover your losses. If you have been paying for the insurance fees, you deserve the right to recover for your losses.

Check out America's Best Bookkeepers


About Complete Controller® – America’s Bookkeeping Experts
 Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

Fake business man with clipping path
Many organizations and individuals face employee theft and embezzlement each year. Embezzlement is theft or misappropriation of funds by employees. According to a 2012 report from the Association of Certified Fraud Examiners (ACFE), “the typical U.S. business loses 7% of its annual revenues to employee fraud”. Small businesses have the most cases and the highest losses. Risk of fraud has increased due to the advancement of technology and progressive development of the world into a global village. Organizations should develop multi-layered fraud prevention strategies while keeping these statistics in view.

Warning signs:

  1. The employee is working extra hours.
  2. Petty cash and supplies are decreasing rapidly.
  3. The employee is frequently taking work home.
  4. The employee has an unusually close relationship with vendors.
  5. Employee is obviously spending more than they are earning.

How to Prevent Theft of Physical Assets:

Random and surprise audit system:

Along with annual and quarterly audits of assets, a system for uninformed audits should also be developed. Under pressure of unexpected audits, employees are normally more likely to avoid stealing and fraud.

Segregation of duties:

Duties of the inventory management staff should be clearly delegated to prevent fraud. Purchase order issuance and receiving of stocks should be done by two different individuals.

Security cameras:

In inventory storage areas, CCTV cameras should be installed to prevent employee theft.

Limited access to inventory storage areas:

Only authorized personnel are allowed to enter areas where there is a lot of inventory or financial information.  It should also be kept locked during off hours. Keys should be issued to specified individuals only.

How to  Prevent Check Tampering:

Security of blank checks:

Blank checks are not accessible to anyone and should be locked until required for bookkeeping.

Check bank statement of  business:

Review of monthly bank statements helps in detecting fraud in the form of tampered checks.

How to Prevent Expense Reimbursement Schemes:

Receipts of expenses:

For reimbursing random employee expenses, demand a receipt of those expenses which the employee is claiming.

Policy for expense reimbursement:

A company must have a documented expense reimbursement policy. A clear segregation of reimbursable expenses should be defined in that policy and every employee must receive a copy of reimbursement policy.

Comparison of expense reports:

A comparison of the expense reports submitted by different employees should be made to evaluate the legality of expenses.

How  to Prevent a Billing Scheme:

List of approved vendors:

To prevent fraud at this level, maintain a list of approved vendors and do research to ensure the legality of the vendors. If you don’t practice this simple plan, then you may be paying fake companies.

List of approved price:

The approved price list should also be maintained to avoid payment at higher rates.

Signed receipts.

Sign a check only if a signed receiving of the product is attached.

How to Prevent Theft of Cash:

Manager’s approval:

Sensitive transactions should always be accomplished after approval of a manager.

Monthly account statements:

Regular updates of customer account statements prevent fraud at this level.

Rotation of duties:

Rotation of duties and sending the employee on annual leaves and vacation prevents employee theft because the employee has the terror of easy detection by others.

Bank lockers:

Cash and payment handling by employees should be minimized to prevent cash theft. Payments should be received directly into a bank account of the company.

Surprise audit of cash:

Discrepancies in cash can be detected easily by counting the cash and comparing it with receipts.

Video cameras:

Install video cameras in sensitive areas where cash is handled to prevent stealing.

Conclusion:

Fraud prevention and fraud handling are very essential to secure your business. Following the above shortcuts in an organized manner will lead to an anti-fraud policy that actually works and strong internal controls.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

 

 

 

Businessman putting dollar banknotes into pocket
Regular inventory check, financial books audits, establishing a code of conduct, setting up organizational checks and balances, instituting policies and procedures, personally reviewing financial statements each month and other similar preemptive tools can be implemented in the business to prevent employee fraud and theft.

Unarguably, employee theft is costly to businesses. According to studies, businesses lose 9% of their annual revenues to fraud or theft and it causes American business owners to lose about $60 billion each year. Yes, you heard it right! The staggering figures bear testimony to the fact that employee fraud or theft has been on the rise in most parts of the world, America being on the top of the list. People are getting rightly concerned about the fate of their business, as they should be.

Protecting your business against employee theft and fraud is no easy feat. However, there are ways in which you can minimize fraud and prevent employees from stealing from you.

Establish a Code of Conduct

If you expect to maintain complete control over your business and its daily operations, you have to establish a code of conduct for your employees. Most successful retail establishments across the globe consider it a sole reason for their success. No business can tolerate any illegal or unethical activity towards new and privileged customers, vendors or suppliers, employees or the company itself. Therefore, it is safe to say that establishing a code of conduct can actually prevent employee fraud or theft.

Once employees would know the repercussions of their bad or opportunistic behavior, they will be more likely to avoid taking risks and stealing from you. Upon a successful hire, the code of conduct must be communicated, acknowledged and readily signed by new employees so that they will have less motivation to cheat or steal.

Plan Organizational Checks and Balances

Whether your business is small or large, setting up organizational checks and balances helps you to monitor everything on your own. It doesn’t matter whether your manager has been with you for the past 10 years, intentions can change at any time which means you should never delegate the entire responsibility of managing everything on to your manager. Your accountant may be a pro at bookkeeping and maintaining the financial books, but you, as an owner, should take an interest in tracking core things like the handling of deposits and payments, invoices and order emails, and transaction documents. By setting up a surprise or regular organizational checks and balances, you can easily prevent employee fraud or theft.

Institute Policies and Procedures

Effective organizational policies and procedures help prevent fishy activities from employees. Once employees know the pros and cons of following organizational policies and procedures, they will know the repercussions and abide by the rules and regulations of the company. In manual accounting, accountants usually have more control over credits and finances, which means there is an open opportunity for unethical accountants to steal from you by manipulating the financial books and records. This has to stop, no matter what, and you can prevent employee fraud or theft by introducing advanced or custom-made accounting software. By integrating accounting software, you can expect to manage your payroll and maintain a better control over the credit limits and finances.

Watch Employee Behavior

Where employees can turn things around for you and make you successful, they can also cause you to lose everything. No matter how much you trust them, you should always have a backup plan to discourage any unethical or illegal activity. If you notice suspicious things going on around you such as a misplacement of important documents, employees that are reluctant to help you, or giving excessive attention or discounts—look into it.

Stretching an extra mile to know your employees’ changing behavior will help you save a lot of money and help prevent employee fraud or theft. You can install CCTV cameras, track vendor invoices and important files, employ efficient accounting software, give employees’ fringe benefits and bonuses, arrange weekly/monthly workshops to help discourage unlawful or unethical activities and prevent employee fraud or theft.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

Are You Covered?

The Association of Certified Fraud Examiners (ACFE) ‘Report to the Nations on Occupational Fraud and Abuse’ published its Global Fraud Study in 2016
.
According to the Executive Summary by ACFE Global Fraud Study in 2016, a typical organization loses 5% of revenues in a given year as a result of fraud. Corporations of different sizes incline to have different fraud risks. In big corporations, corruption was predominant, while check tempering, payrolls, and stealing were twice more common in small businesses.

Frauds are often more common in small businesses as they lack special security checkups and foolproof systems. A small business may have installed accounting software, but the accounting software for small business may lack many functions reserved for software purchased by big corporations. Even though a good accounting software may have been purchased for a small-sized business, there still remains a chance of fraud. Usually, in a smaller company, a single person is trusted for operating accounting software and business bookkeeping.

Focus on these areas in a small business to minimize small business frauds:

  • Expense
  • Procurements
  • Payments

Top Areas to Monitor for Employee Fraud

Frauds are made through these channels:

1.  Frauds through Purchase Order
2.  Misuse of Business’ Credit Cards
3.  Frauds on sales and receivables
4.  Payroll Frauds
5.  Information systems and critical data stealing

1.  Frauds through Purchase Order

  • Employee purchases goods that he intends for personal and private use.
  • The employee makes a vendor’s account in which he pays fraudulent invoices.

Frauds through purchase orders can be traced by checking if the same person makes purchase orders and approves payments for those orders. It can also be detected if there are various split purchase orders within an allowed limit.

 

2.  Misuse of Business Credit Cards

  • Many businesses give corporate’s credit cards to its employees when they are going on a business trip. When the credit card bill arrives, do not blindly sign the bill. Before signing, check the outlets where this card had been used. Your business money should not be used for any unapproved items or excursions.
  • Many frauds fall into a double billing fraud type. An employee uses the business credit card for making an expense. Then he again submits the receipt for the same expense to reimburse the money. There should be a strict procedure to keep a check and balance on double billing frauds.

3.  Frauds on Sales and Receivables

The employee develops a personal contact with the sales representative and gets a commission on that.

Fraud tests can spot customer accounts which are receiving unusual discounts, customer’s account having higher memos, customer’s account with high credit terms, and when the shipment address of sales is same as employee’s.

 

4.  Payroll Frauds

Payroll frauds can be of the following types:

  • Payroll of a person who was terminated or died still exists in payroll section
  • Payroll of a person who does not exist at all
  • Adding overtime payments in the payroll without permission or reason

 

5.  Information Systems and Critical Data Stealing

Employees can steal and misuse critical data from the information system of a company. They can sell the customers’ data and information related to address and contact numbers to a third party.

To check for any data stealing from your business database, run specific tests on the computer system. The test will detect the accounts who had accessed the database from their company’s accounts. Check out if this employee had the authority and permission to log in to company’s database.

If an authorized employee makes frequent logins to the system and there is no such apparent need, monitor closely. Run tests to access if any data was copied and moved.

There is a special software which runs discretely to detect emails carrying critical and important data of the company.

Conclusion

No business is immune to fraud or theft. Employers should closely monitor the activities of their employees. They should focus on the above five areas that act as a channel of fraud by the employees. Employers must strictly monitor the bookkeeping, especially, to prevent fraudulent activity.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

Concept of accusation of guilty arrogant businessman. Middle aged man judged by different people many women fingers point at him. Guy shrugs shoulders
Many organizations and individual business owners face fraud and theft each year due to their employees. The risk of fraud has increased due to the advancement of technology and progressive development of the world into a global village. According to 2014 research reports by global nation, organizations face 5 % loss due to fraud each year, in which 85 % of serious fraud cases were committed by internal employees. Organizations should develop multi-layered fraud prevention strategies while keeping these statistics in view. Practice the following plans and policies to prevent fraud and employee theft in your business.

Practice Corporate Culture

Corporate culture defines procedures and policies which govern employees. The organizational structure of reporting systems, the accountable person, their segregation of duties, job responsibilities and limitations should be clearly defined. Hire the right employees by investigating their past employment history and educational background.

Establish an Anti-Fraud Policy

A documented policy which defines fraud, its prevention, and detection policies should be implemented after proper training of all employees. A zero tolerance policy of all kinds of fraud should be communicated to employees. They should also be aware of actions which would be taken in case of fraud.

How to Prevent Theft of Physical Assets:

Random and Surprise Audit System

Along with an annual and quarterly audit of assets, a system for uninformed audits should also be developed. Under pressure of unexpected audits, employee avoids stealing and fraud.

Segregation of Duties

Duties of inventory management staff should be clearly segregated to prevent fraud. Purchase order issuance and receiving of stocks should be done by two different individuals.

Security Cameras

In inventory storage areas, CCTV cameras should be installed to prevent employee theft.

Limited Access to Inventory Storage Areas

Only authorized personnel should be allowed to enter areas in which inventory is kept and these areas should be kept locked in off hours. Keys should be issued to specified individuals only.

How to  Prevent Check Tampering:

Security of Blank Checks

Blank checks should not be accessible to anyone and should be locked until required for bookkeeping.

Check Bank Statements of  Business

A review of monthly bank statements helps in detecting fraud in the form of tampered checks.

How to Prevent Expense Reimbursement Schemes:

Receipts of Expenses

For reimbursing expenses, demand a receipt of the amounts that the employee is claiming.

Policy for Expense Reimbursement

A company must have a documented expense reimbursement policy. A clear segregation of reimbursable expenses should be defined in that policy and every employee must receive a copy of the reimbursement policy.

Comparison of Expense Reports

A comparison of expense reports submitted by different employees should be made to evaluate the legality of expenses.

How  to Prevent a Billing Scheme:

List of Approved Vendors

To prevent fraud at this level, maintain a list of approved vendors and do research to ensure the legality of the vendors. If you don’t practice this simple plan, then you may be paying fake companies.

List of Approved Price

An approved price list should also be maintained to avoid payment at higher rates.

Signed Receipts

Sign a check only if a signed receiving of the product is attached.

How to Prevent Theft of Cash:

Manager’s Approval

Sensitive transactions should always be accomplished after approval of a manager only.

Monthly Account Statements

Regular updates of customer accounts prevents fraud at this level.

Rotation of Duties

Rotation of duties and sending employees on annual leaves and vacation prevents employee theft because the employee has the terror of easy detection by others.

Bank Lockers

Cash and payment handling by employees should be minimized to prevent cash theft. Payments should be received directly in a bank account of the company.

Surprise Audit of Cash

Discrepancies in cash can be detected easily by counting the cash and comparing it with receipts.

Video Cameras

Install video cameras in sensitive areas where cash is handled to prevent stealing.

Conclusion

Fraud prevention is critical to secure your business. Following the above plans and policies in an organized manner will prevent employee theft.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

protecting idendity fingerprints or id fraud from binary codes as like rain, guarding identity symbol and personal information
In general, people are good and employees are honest in their workplaces. However, there have been many occurrences of some employees trying to steal products or money from their employers. Speaking in terms of figures, the estimated losses attributed to employee theft amount to $200 Billion annually. In fact, business owners should remain alert in regards to the loopholes their business operations might have that would allow their employees to steal. Data from bookkeeping may help you detect this, but only after you have become a victim of employee theft. You need proactive solutions in order to prevent theft from happening in the first place. Here is a list of certain common practices that you need to keep in mind when safeguarding your business from the threat of employee theft. Implementing solutions into your strategy would significantly reduce the chances of your business facing any kind of employee theft.

1. Phony Vendor Accounts Set Up By Employees

This is one of the most common ways for employees to steal, by setting up phony accounts so that they are able to create fake invoices. By doing this, they are able to issue checks against these invoices to the vendor account. They are then able to have these checks deposited into bank accounts. This mainly involves misreporting expenses, such that $700 paid to a vendor may be entered into expenses as $800 (with a phony invoice as proof), enabling the employees to write themselves a check worth $100. Another somewhat similar issue is setting up a fake payroll for employees that have either quit or are retired.

The solution to this involves tracking purchases in a numerical order. Also, you can task different employees with different tasks. You should have one employee setting up a vendor account, a different employee writing checks, and another one verifying and recording invoices. In addition, you need to make sure that all employees are aware of the processes in your accounting and bookkeeping systems.

2. Theft of Checks

It is common for employees to take a check from the company checkbook and then either deposit or cash it. This is because banks do not usually verify the signature when it comes to company accounts.

This problem can be solved by keeping your checks locked and issuing them in a particular sequence. Ensure the reconciliation of cash accounts with bank statements on a monthly basis. It is advised that you should review bank statements in order to ensure that only the checks that have been authorized are cleared.

3. Stealing Directly from the Cash Register

This is mostly done when a cash payment is accepted by the employee at the cash register who can balance the drawer later on by voiding the particular transaction.

Solving this problem involves, first, keeping a check on the number of voids for each cash register on a routine basis. Along with this, you can have video cameras watch over the registers to ensure that employees do not put any cash from the register into their pockets.

4. Faking Expense Accounts

This is one of the most common ways that employees steal from their employer. They do this by submitting fake expenses or recording real expenses on a receipt multiple times.

The solution to this consists of properly recording a receipt of each expense and coming up with a way to ensure that any particular receipt hasn’t been submitted in the past. You can do this by requiring employees to submit unique identifiers for each expense receipt. For example, a receipt from a vendor could have a unique order number mentioned on the invoice. While a receipt from, suppose, an electrician or plumber for a business-related repair might have a unique invoice number. This will make it easier for you to catch a double entry and verify the authenticity of single entries.

5. Employees Punching In and Out for Coworkers

This is known as “Time Theft” and is a very common practice committed by employees of a business who utilizes traditional time cards to keep track of working hours. Sometimes, employees, themselves, fill out time cards for the days they aren’t present if the time cards are not checked on a daily basis.

One of the ways of solving such a problem is to adopt a bio metric punch in/out system. Utilizing fingerprint or face detection for keeping track of time can help. Many businesses have already incorporated such systems into their operations.

6. Stealing from Inventory and Falsifying Inventory Records 

Sometimes, employees may take items from the inventory that have not yet been entered into your inventory management system. Another thing that happens is the setting up of a phony vendor who does get paid for products which aren’t delivered to the business.

In order to solve this problem, you need to integrate physical inventory checks into your routine. While doing so, keep note of anything that is missing and utilize RFID tags to keep track of valuable items in the inventory.

7. Data Theft

The targets for this particular kind of employee theft are usually records of a customer’s data, which might be of personal nature. Other data that might be considered valuable can also be stolen.

Prevent this by requiring employees to frequently change their passwords. Delete the accounts of employees who have stopped working for you either due to retirement, quitting, or being dismissed. You should also restrict access, only allowing employees to access the data relevant to their job function. Cloud storage solutions are able to provide such security measures for the data of your business.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

 

Closeup portrait of shocked middle-aged business man staring at camera through glasses. Shock concept. Isolated front view on white background.
Employee fraud and theft is certainly a big concern for small businesses. Most owners don’t realize the impact a fraud could bring to their business and don’t believe it until they face the curse themselves. Small businesses have every reason to worry about fraudulent activities in their company. It can hamper and disrupt their working capital and, most importantly, their cash flow. Undoubtedly, small businesses are more vulnerable to employee fraud, theft, stealing, larceny, robbery, embezzlement – whatever you name it – because of ill-defined practices and processes and lack of business control. This indicates that lack of accounting knowledge and wisdom coupled with a lack of business management skills may land you in a real trouble.

Employee Theft and Fraud Can Lead to Lethal Repercussions—Are you Protected?

There is certainly no denying the fact that employee fraud can devastate your business. No matter how successful your entrepreneurial venture may be, a slight miscalculation in finances or wrongful business projections can devastatingly hurt your business. According to studies, US-based businesses suffer a staggering $150 billion dollar loss in fraudulent employee activities every year, out of which, 83% theft happens to be in small businesses.

Another trend that has been identified by the ACFE (Association of Certified Fraud Examiners) is that small businesses with fewer than 100 employees are more vulnerable to employee fraud which can even kick the business out of the competitive race. Why? Because of two core reasons; a greater degree of misplaced trust and a lack of basic accounting controls. If small business owners expect to stay competitive, they need to come up with effective and implementable loss prevention strategies in order to get their business going in full swing. Often times, those who steal from you are typically suspected least in the company because of their well established trust and faith.

What Should You Watch For?

In today’s era, catching culprits does not have to be that hard. Now, we have superior technology and practices that can help us prevent organizational losses and discourage fraudulent activities such as employee fraud. Blind trust can lead you to a complete failure or utter disaster. You need to track and monitor daily business operations and activities, especially the influx or outflow of cash flow yourself in order to keep things going in the right direction. The fear of losing cash and assets can cause anxiety and mental stress, which can be troubling for your health and your business.

Any significant behavioral changes in employee attitude, working abilities, or spending habits can be warning signs of chances of some kind of employee fraud. Sometimes, financial stress and pressure at home can also lead an employee to commit theft or fraud. Moreover, your employees living beyond their financial means can also raise suspicion, which needs to be investigated. Pure blind trust is a story of the past. Now, no matter how much trust you may have in your employees, you need to ensure that they are not stealing from you or committing fraud.

Ways to Protect Your Organization from Employee Fraud

Creating a written fraud or theft policy can help prevent employee fraud. This way, employees will know what fraud means to the company and what the repercussions will be if someone from the company is involved in any fraudulent behavior or activity. To set a precedent, you need to establish a code of conduct with a zero-tolerance policy in order to discourage such illegal activities.

You must have bookkeeping and accounting control so that you can make better business assumptions and decisions. If you have hired internal and external tasks of the business, you need to conduct an audit on a regular basis to know the actual financial conditions of your business.


Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

Concept of accusation of guilty arrogant businessman. Middle aged man judged by different people many women fingers point at him. Guy shrugs shoulders
Many organizations and individual business owners face fraud and theft each year due to their employees. The risk of fraud has increased due to the advancement of technology and progressive development of the world into a global village. According to 2014 research reports by global nation, organizations face 5 % loss due to fraud each year, in which 85 % of serious fraud cases were committed by internal employees. Organizations should develop multi-layered fraud prevention strategies while keeping these statistics in view. Practice the following plans and policies to prevent fraud and employee theft in your business.

Practice corporate culture

Corporate culture defines procedures and policies which govern employees. The organizational structure of reporting systems, the accountable person, their segregation of duties, job responsibilities and limitations should be clearly defined. Hire the right employees by investigating their past employment history and educational background.

Establish an anti-fraud policy

A documented policy which defines fraud, its prevention, and detection policies should be implemented after proper training of all employees. A zero tolerance policy of all kinds of fraud should be communicated to employees. They should also be aware of actions which would be taken in case of fraud.

How to Prevent Theft of Physical Assets:

Random and surprise audit system

Along with an annual and quarterly audit of assets, a system for uninformed audits should also be developed. Under pressure of unexpected audits, employee avoids stealing and fraud.

Segregation of duties

Duties of inventory management staff should be clearly segregated to prevent fraud. Purchase order issuance and receiving of stocks should be done by two different individuals.

Security cameras

In inventory storage areas, CCTV cameras should be installed to prevent employee theft.

Limited access to inventory storage areas

Only authorized personnel should be allowed to enter areas in which inventory is kept and these areas should be kept locked in off hours. Keys should be issued to specified individuals only.

How to  Prevent Check Tampering:

Security of blank checks

Blank checks should not be accessible to anyone and should be locked until required for bookkeeping.

Check bank statements of  business

A review of monthly bank statements helps in detecting fraud in the form of tampered checks.

How to Prevent Expense Reimbursement Schemes:

Receipts of expenses

For reimbursing expenses, demand a receipt of the amounts that the employee is claiming.

Policy for expense reimbursement

A company must have a documented expense reimbursement policy. A clear segregation of reimbursable expenses should be defined in that policy and every employee must receive a copy of the reimbursement policy.

Comparison of expense reports

A comparison of expense reports submitted by different employees should be made to evaluate the legality of expenses.

How  to Prevent a Billing Scheme:

List of approved vendors

To prevent fraud at this level, maintain a list of approved vendors and do research to ensure the legality of the vendors. If you don’t practice this simple plan, then you may be paying fake companies.

List of approved price

An approved price list should also be maintained to avoid payment at higher rates.

Signed receipts

Sign a check only if a signed receiving of the product is attached.

How to Prevent Theft of Cash:

Manager’s approval

Sensitive transactions should always be accomplished after approval of a manager only.

Monthly account statements

Regular updates of customer accounts prevents fraud at this level.

Rotation of duties

Rotation of duties and sending employees on annual leaves and vacation prevents employee theft because the employee has the terror of easy detection by others.

Bank lockers

Cash and payment handling by employees should be minimized to prevent cash theft. Payments should be received directly in a bank account of the company.

Surprise audit of cash

Discrepancies in cash can be detected easily by counting the cash and comparing it with receipts.

Video cameras

Install video cameras in sensitive areas where cash is handled to prevent stealing.

Conclusion

Fraud prevention is critical to secure your business. Following the above plans and policies in an organized manner will prevent employee theft.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.