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The Association of Certified Fraud Examiners (ACFE) ‘Report to the Nations on Occupational Fraud and Abuse’ published its Global Fraud Study in 2016
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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.

 

Credit Cards Theft Concept. Hacker with Credit Cards on His Laptop Using Them For Unauthorized Shopping. Unauthorized Payments
Falling prey to a sale made with a stolen credit card is something many businesses, especially small ones, do not consider until they become a victim. It makes you vulnerable to losing money and trust. As a business, you want to minimize the risks and cut losses when it comes to such a fraud.

Even though credit card fraud is a rare occurrence, if your business accepts them, it is something you can’t neglect. It is estimated that such activities cause losses amounting to $16.31 Billion around the world and almost half of these are reported in the United States.

It can happen regardless of whether your business operates online or offline and can also be conducted on a massive scale. A particular group was caught and charged with conducting a credit card fraud that had caused losses of around $13 million over a period of 16 months.

Usually, holiday seasons are profitable times for all kinds of business owners. Sadly, the profits can fade away if any such loss takes place, resulting in additional liabilities for the business or the owner. It is seen that many businesses start placing preventative measures only when they are hit by a credit card fraud. It is suggested that owners take proactive measures to prevent such losses from affecting them in the first place.

Spotting Fraudulent Orders

If your business takes orders online or over the phone, there are a few things you can do to screen suspicious orders. One of the most common methods is to ask for AVS or CVV verification methods. These methods are specifically useful in transactions in which the credit card isn’t physically present.

Other things that you can look for are:

  • Large or expensive orders placed online, especially if they require things like same day shipping or overnight shipping
  • Buyers who claim they will place a large order and ask for a catalog or list of what you sell
  • Customers who are hesitant to provide personal information, such as phone numbers or full name
  • Shipping to foreign countries paid by a US card or orders with different billing and delivery addresses

It’s not feasible to label a transaction as fraud if it fits only one condition. However, the presence of several reasons could be reason enough to be suspicious. It is suggested that you investigate the matter in order to avoid losses.

What should be done to further investigate the order?

If you find several of the above things applicable to the order, you have legit reasons to be suspicious. Now, in order to thoroughly analyze whether it is fraudulent or not, you can do a variety of checks to make sure that the order is being placed by the cardholder or someone authorized by the credit card holder. These are:

  • Request complete information on the cardholder such as name, address, phone number and zip code.
  • Make CVV a compulsory requirement for transactions.
  • Verify the provided information through the bank or whatever other verification system is practiced in your area. If the information doesn’t match up, decline the order.
  • Block transactions through a service that intercepts the order based on the region of origin and other things. These services are available easily for a fee.
  • Attempt to call on the contact information of the cardholder. Decline the order if you can’t reach the cardholder.
  • Look up local orders and match them with phone numbers and addresses in the phone book.
  • Utilize an address verification service to mark suspicious sales and block them, if need be.
  • When you ship the product, it is smart to send a reminder message. Sometimes people forget what they have ordered. Sending a letter to the billing address may also help you verify the order.

If you take up these steps, which are essential for cutting losses, your business will be doing all it can to avoid credit card fraud.

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.

 

A businesswoman selecting a Fraud business concept on a futuristic portable computer screen.
The ACFE (Association of Certified Fraud Examiners) Global Fraud Study disclosed that a typical business loses an average of 5% of income each year because of fraud. Universally, this translates to deficits of roughly $3.7 trillion, according to anti-fraud experts.

Furthermore, other than lost income, there are also unforeseen costs. For example –  decreased productivity, low employee morale, tarnished brand images and ruined reputations, all resulting from personnel and employer fraud.

Despite such sobering fraud statistics, do not think that it is too late to acquire the latest information and implement proactive methods that avoid, detect, and investigate prospective acts of business fraud. There are facts that you need to be aware of concerning the different types of fraud performed in the workplace. In addition, you also need to learn what can be done to create powerful controls in vulnerable regions of your organization.

Small Businesses Suffer Bigger Monetary Losses

Although both small and large businesses fall victim to fraud, the ACFE discovered that businesses with fewer than 100 employees are most susceptible compared to their superior equivalents. Larger companies are more likely to implement anti-fraud practices, such as internal departmental audits, hotlines, and employee fraud training. In the case of smaller companies, they are less likely to execute similar anti-fraud measures that detect fraud sooner.

Fraud Creating a Monetary Impact on Businesses

According to the ACFE, cyber crime and identity theft (specifically credit card abuse) are among some of the biggest common means of fraud in small-scale businesses. Unfortunately, small companies suffer a bigger financial hit due to unscrupulous behavior in their business.

ACFE’s statistics reveal that thought corruption cases and asset misappropriation causes significant losses to businesses. The most monetary damage with a median of $1 million is due to financial statement fraud.

Another source of trouble for businesses looking to maintain insurance claims and costs is workers’ compensation fraud. The NICB (National Insurance Crime Bureau) has estimated that approximately 25%, or $7.2 billion per annum, is because of workers’ compensation fraud that businesses have to suffer. If a business takes a look at its bookkeeping records, they might be able to calculate the fraud statistics of their business specifically.

Battling Fraud in your Business

Research has shown that fraud is indiscriminate of industry, employer size, or geography. Therefore, it is vital to take active steps to avoid and mitigate the impacts of fraudulent activity.

CFE fraud experts indicate that the implementation of anti-fraud regulations supports to reduce both monetary losses and the duration proceeding from fraud schemes. Decreasing the spell of fraud is essentially critical because the lengthier the fraud lasts, the more financial damage it can cause to a business.

Best Practices for Detecting and Preventing Fraud

Some practices have proven to be particularly successful at detecting and preventing and fraud in businesses:

  1. Instituting an anti-fraud hotline
  2. Implementing a code of conduct and an anti-fraud policy
  3. Establishing fraud training and management review procedures for executives, employees, and managers
  4. Conducting surprise inspections
  5. Directing external inspections of internal controls utilized in financial reporting
  6. Applying systems that actively analyze and monitor company data

Though it’s certainly essential to implement and monitor anti-fraud restriction, not all of the anti-fraud processes are made equal. For example, the ACFE discovered that from the 80% of fraud cases reported, about 42% were identified via hotlines compared to the 3% that were found through external audits.

If you are unsure about which anti-fraud control to use in your business, consult with an anti-fraud consultant, a fraud examiner, or an auditor for advise on the measures that will be effectual for 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.

 

Criminal counting ransom money for kidnapping, blackmail, contract killing, stock footage
There is certainly no denying the fact that businesses fear embezzlement, fraud, and theft. According to a studies, embezzlement eats up a significant portion of revenue and annual profits. It restricts companies in creating a high-level impact in the market which further prevents them from expanding their business operations. Statistics reveal that trusted employees steal more from businesses than other individuals or stakeholders in the company.

Top executives and business owners from around the globe have devised methods to protect their business’s from fraudulent activities. But, still, no one has yet come up with a magic formula to completely prevent the unfortunate reality. Employee theft and fraud are eminent. Employees’ opportunistic behavior often leads them to commit financial crimes causing companies a great deal of financial stress and trauma. A staggering 87% of embezzlement cases come from trusted partners and employees, which is worth contemplating.

Small Businesses Are More Vulnerable To Fraud

The media is filled with thousands of stories of serious fraud. This indicates that the life of business owners, especially entrepreneurs, is never easy. They have to regularly come up with different ways to protect themselves against embezzlement. Inexperienced business owners often lack the seasoned wisdom to make a distinction between their employees, especially those who are stealing. Those who have a habit of stealing are quite often smart, confident, and less concerned about losing their jobs, as they already know the repercussions.

Those who steal without the fear of getting caught can ruin a business entirely. Small businesses may be more vulnerable to fraud, but that doesn’t mean that nothing can be done to prevent embezzlement. Being a business owner, it is your duty and responsibility to maintain complete control over your finances and other important matters of your business. Developing a framework and streamlining operations requires you to know every fine detail. From bookkeeping accounts and bank statements to inventory and clients, you must know everything prior to making important business decisions. On top of all of this, unfortunately, you must be aware of the possibility of fraudulent activities in your business as well.

Protecting your business against embezzlement may be hard, but it is not impossible. Below, we have outlined how you can maintain complete control over your business and prevent cash, goods, and sensitive information from becoming the next case of embezzlement.

Know Your Employees and Notice Changes in Their Commitment

Sadly, your employees are a potential threat to your business because you never know who will steal from you. It could be a new employee just coming into the company or a trusted veteran. However, with minimal effort, you can prevent a lot of anguish. To protect your business against embezzlement, you must know your employees well. Things such as sudden changes in habit and behavior, a lifestyle above salary-levels, overnight shifts, strong objections to new accounting regulations, discrepancies in financial records, drugs, gambling, etc. may be warning signs of embezzlement.

Keep a Check and Balance System in Place

Obviously, it is hard to manage everything manually. It is more beneficial to create a custom solution tailored to your business needs in order to record, track, and analyze things wisely for better decision making. In layman terms, what’s going in and out of your business must be recorded chronologically in order to have a clear snapshot of finances and other important business matters. Keeping your personal and business accounts separate allows you to track personal and business expenses independently. This way, you will gain a true picture of your business, which will further prevent embezzlement.

Create a System to Report Theft or Fraud

A reporting system system needs to be very carefully incorporated into a business, as it shouldn’t signal employees as a sign that you don’t trust them. Losing the trust of your employees is hard to remedy. Therefore, you must keep all of the complaints filed by your employees confidential and secure from their co-workers. This way, employees feel more encouraged and safe in reporting fraudulent activities that they think might be happening. This will help you protect your business against embezzlement.

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.

 

Finger print Scanning Identification System. Biometric Authorization and Business
When a small business owner plans to create a website, use cloud accounting tools, or even just creates a business email, they must plan for cyber security as well. The increase in online business operations has also increased the theft of digital information. Cyber theft has now far surpassed physical theft.

Every business must ensure enough measures are taken to protect the business information of cyber theft.

Online Security Basics for Small Business Websites

The following cyber security strategies will protect your small business websites from cyber crimes. These strategies follow security basics to prevent digital information theft of mailing and bookkeeping information of the business. Cyber security is essential to protect not only business information, but also protect the customer information and data.

1. Train Staff in Security Principles

Establish policies and rules of conduct for employees. They cannot misuse or leak out any customer’s data to any other person. Ask them to keep strong passwords of their user accounts on their small business websites and company database.

2. Shield Information, Computers, and Networks from Cyber Attacks

Use an updated version of antivirus on your computer system. Always keep your computer-based machines free of malware, viruses, and online threats.

Popular antivirus, anti malware, and registry programs that will keep your machine safe and running smoothly include AVG FreeSpybot Search & DestroyMicrosoft Security EssentialsMalwarebytes Anti-Malware, and Piriform CCleaner.

3. Provide Firewall Security for your Internet Connection

Ensure a firewall is always on your internet connection. A firewall blocks outsiders from accessing your data on a private internet connection. If an employee works and accesses the business website from his/her home, make sure the firewall is on his/her system.

4. Make a Plan on how to Access Website from Mobile Device

Mobile phones create security issues as mobile phones can be stolen or misplaced easily. Mobile phones must also be installed with firewalls and antivirus programs. Install security apps on your mobile devices.

5. Always Keep Backup of all the Important Business Information on Website and on Cloud Accounting Software

Backup all accounting and bookkeeping data for your small business on all computers. Regularly backup the data. Also backup customer data and databases. 

6. Control Physical Access to your Computers and Create User Accounts for Each Employee

Do not give your passwords to your employees. Make user accounts for each user separately. Give them a limited access to data from their accounts. Administrative accounts must be reserved only for administrative staff or key personnel. Laptops can also be stolen. So, always log out of your website account before getting up from your work space.

7. Secure your Wi-Fi Networks

If you have wi-fi, then secure it with a password. Periodically change the password if there is any fear of a stolen wi-fi password. Your wi-fi must be secure and encrypted. Hide your wi-fi network.

8. Surf the Internet Separately

Use a separate computer for internet surfing. Business bookkeeping, accounting, and banking functions should be done on separate computers.

9. Passwords and Authentication

Change passwords every three months or as frequently as possible. Place a further authentication system after entering a correct password to your small business website.

10. Beware of Spam Emails

Do not open links provided in emails which are not recognized.

You can useSpamKiler, a web-based program which encrypts email addresses. Even then, do not open unrecognized links in emails.

11. Protect Digital Assets from Cyber Theft

You can protect yourself from customers who want to steal your downloads by using DL Guard.

12. Avoid Over Payment Scams

Sometimes small business owners receive emails on their website emailing account on how they have paid extra somewhere and they are offered a way to pay the fee by clicking on the links or sending their information to some third party.  Do not fall victim to this scam. 

13. Avoid Lucky Draw and Lottery Scams

If any email says your business has won an award or lottery, for which you had never paid, do not open the links.

Conclusion

Digital information theft has increased more than physical theft in today’s era. Cyber security measures must be adapted to protect business information as well as customer information from the potential perpetrators. Strict policies and measures should be taken to ensure cyber security in small business websites and systems.

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 nervous middle-aged beautiful dark-haired woman looking away and covering mouth with fists. Panic concept. Isolated front view on white background.
Small business owners are hesitant to report an employee stealing from their company as they do not want to involve the police, new research finds.

Employee theft may not be the number one concern that keeps a business owner awake at night, but it can bring about negative impacts on a company. Besides hurting the morale of employees and damaging a brand name and reputation, it can drain a significant portion of annual revenues and profits that eventually kicks a business out of the competitive race. In the wake of challenges and the ever-evolving mindset of stealing, companies cannot expect to survive for long. So, companies need to come up with loss prevention strategies and implement the proper tools and techniques to prevent employee theft and embezzlement.

Statistics Reveal a Different Picture

According to the study conducted and reports filed by the University of Cincinnati, research shows that 64% of employees steal from small businesses while only 16% of employers report the theft to the police. There is certainly no denying the fact that cheating employees are ever-ready to steal from a company whenever they get the opportunity. Small businesses are more susceptible and vulnerable to employee theft and embezzlement.

One report finds that companies with fewer than 100 employees have a higher percentage of theft and embezzlement cases. A staggering 92% of theft cases bear testimony to the fact that employees feel more inclined to steal from small companies due to their freedom to handle important business affairs like business management, bookkeeping, or accounting on their own. The University of Cincinnati research also found out why employers are reluctant to get the authorities involved and you may be surprised to know the reasons which include concerns about the criminal justice system and emotional ties.

What Makes Small Business Owners Hesitant to Report Theft?

There are reportedly four reasons why employers feel reluctant to report employee theft to the police and we will discuss those below.

No Real Victims

The nature and approach of business owners plays a significant role in determining the fate of an employee stealing from a company. Some owners are more concerned about recovering their losses than actually reporting the fraudulent activity. This category of people may even forgive their employees and give them another chance to prove their worth and loyalty or perhaps, under extreme cases to set a precedent, fire them after recovering their losses without reporting them to the authorities. Many business owners do not see victimization as a serious offense to be prosecuted officially and causing troubles beyond firing the employee stealing from the company. They believe that are many more things to worry about rather than this.

Attorney Advises Against It

The costs of prosecuting a perpetrator may be much more than what an employee actually stole from your company. Small businesses usually have scarce resources to deal with employee theft that restricts them from prosecuting a case in court. However, for large businesses and corporate level frauds, $20,000 or more, prosecuting a case is advisable.  Still, the slow restitution could take ages when you recoup the stolen funds. Therefore, many attorneys advise against reporting employee theft to law enforcement, especially if the successful prosecution outweighs any likely benefits that the employer intends to attain for their time and efforts.

Emotional Ties

Since trusted and seasoned employees often have a long work history and good reputation, they tend to steal more from a company than those who just joined the work force. Because of this, business owners often forgive the convicted employee based on emotional ties and history. This is probably one of the biggest precincts faced by small business owners that prevents them from reporting a crime to the local authorities.

They See the Criminal Justice System as Ineffective

Small business owners are often reluctant to get involved with the police in complicated issues involving employee theft. Obviously, the police are going to investigate the matter and may look for evidence of theft, which may involve interaction with coworkers that will create a negative vibe in the organization. On the other hand, there are some business owners who consider criminal justice proceedings as ineffective or incompetent. Quite often, there have been reported cases of law enforcement personnel caught in taking bribes from perpetrators which poses a question on the credibility of the justice system. So, rather than getting involved in lengthy and complicated prosecution methods, small business owners bare themselves from the trial.

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.

 

Fraud word on colorful dices
Many organizations and business owners face fraud each year due to their employees or business partners. New entrepreneur startups and small businesses are more vulnerable. The risk of fraud has increased due to the advancement of technology and progressive development of the world into a global village. The increased awareness of technological developments and complex organizational structure requires corporations to incorporate internal anti-fraud approaches to combat fraud. 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.

Organizations and businesses should do the following 10 things when they suspect fraud.

1. Be Calm and Don’t Panic

Fraud is scary and you will likely want to panic and react abruptly when you suspect fraud at your organization. You may terminate the fraudster on the spot or meet them head-on for confrontation. But these are harmful rather than good for the organization. Don’t react when you are emotional or angry. Prepare a plan, investigate, and do what is beneficial for the organization. Make strategies and policies to handle fraud before it happens.

2. React Logically

It is not preferable to overreact or have no reaction at all to a suspect. If you don’t react and take it easy, the perpetrator will think that they are free to do anything. Ignorant behavior towards fraud will make it worse and the perpetrator commit fraud without any fear of consequences. Always take action when you suspect the fraud but react logically.

3. Be Careful

If you suspect fraud, don’t declare it until you have evidence. If you react without evidence, the fraudsters become alert. The fraudster will try to hide and destroy evidence if they know they are being exposed and you are keeping an eye on them. After suspecting something is wrong, don’t make it obvious. Investigate carefully, otherwise, you will not be able to get any evidence.

4. Back up Financial Data

Always maintain backup data of your organization’s financial dealings. Save on hard copies or hard drives. Get a copy of a hard drive of your suspect discreetly. Preserve all records of transactions, emails, payroll, and bookkeeping. Perpetrators often utilize this information, especially bookkeeping records, to commit fraud.

5. Rehiring

Be mindful and prepare for hiring new personnel. Termination is the minimum consequence of fraud detection. Managers and executives are often so involved in the actual fraud itself that filling the new position can be challenging. Prepare yourself for such challenges.

6. Defend your Reputation

Fraud damages the image and reputation of the organization in front of the public, customers, partners and donors. Try to react calmly and defend your reputation. Resume trust of partners and customers by assuring them that the organization has taken corrective measures.

7. Don’t Save Money

Financial loss due to fraud is recoverable, but the reputation is not recoverable. Hire a certified fraud examiner to make policies for fraud prevention and detection. Your organization may try to save money by not hiring a certified fraud examiner but then will suffer a lot after an incident of fraud. Realize that money is not everything. The thing that matters more is the hard-earned reputation which can easily be damaged by fraud.

8. Set an Example

Set an example by handling fraudsters with tight hands, otherwise, you may encourage others to commit fraud in the future. The penalties recommended after fraud are a civil lawsuit, termination, and criminal prosecution. Impose all three penalties severely, if possible. The employees will see that there is zero tolerance for fraud in your organization and they will face severe consequences if they go there.

9. Get Help

Don’t try to handle fraud on your own because it involves accounting and legal issues. Call a certified fraud examiner for help. They know where to get evidence and how to explain it to the legal system.

10.   Make Positive Changes

Learn from an incident of fraud and prepare the policy for detection and prevention of fraud in the future.

Conclusion

Fraud in business can result in major financial loss, wastage of time, and a ruined reputation. Fraud should be handled strictly when suspected.

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.

 

 


Internal fraud is a major problem faced by organizations today and most companies don’t even readily admit the fact that their business may be vulnerable to employee theft or fraud. Gone are the days when it used to be a rare thing. Now, it is a common activity that is causing businesses to lose billions of dollars in annual revenues and profits. According to a report published by the ACFE (Association Of Certified Fraud Examiners), organizations lose a significant 9% of its revenue due to fraud each year. This indicates that a substantial portion of annual profitability is drained due to this curse and businesses need to come up with a fraud prevention plan in order to secure their invaluable assets.

You Cannot Blindly Trust Your Employees

With right technological tools and techniques, prevention of fraud is possible. However, you need to devise an effective plan if you expect to reduce fraud or employee theft in your organization. Initially, businesses had the margin to trust their employees almost completely due to the long-termed developed faith and trust on personal and professional grounds. Now, businesses cannot trust their employees as they used to. Why? Because people have lost morality and faith and they would exploit the business they might be working in, as much as they possibly can, and get hold onto any opportunity they find.

Maintaining Effective Internal Control

Organizations need to maintain an effective internal control for the prevention of fraud. Fraud is devastating for a business, both financially and culturally. Business owners who ignore the cases of fraud in their organization will face repercussions in the shape of losing their competitive advantage, growth, and working capital. Employee fraud has many forms and there are roughly three major categories that reveal how employees steal from their company. They include corruption, asset misappropriation, and financial statement fraud.  If an organization is successful in maintaining effective internal control, they can expect to greatly reduce employee fraud in their organization. The prevention of fraud is not as hard as it seems; it takes awareness of your staff’s mentality and the proper practices that prevent it from happening.

Poor Internal Control Is Costly To Businesses

Using the right tools and techniques can significantly reduce the percentage of employee fraud. Prevention of fraud is only possible when it is done right. Poor internal control is one out of four primary reasons due to which any fraud occurs. The other three include collision between employees, collision and personal rifts between employees and third parties, and management override of internal controls. If you expect to prevent fraud and eliminate the risks of fraud, you need to design an internal control that can deter fraudulent activities.

What Comes Under The Banner Of Effective Internal Control?

Prior to creating an effective plan for the prevention of fraud, you need to define your company’s culture and the way your business is governed. You need to perform an assessment of each and every employee in order to know them well. Educate your employees by integrating various interactive methods in which every employee must participate. Once the training is finished, continuously remind your staff to uphold standards that will help ensure continuous growth and success. Lastly, you need to document everything clearly, without errors, to make sure that the code of conduct and theft prevention policies are well understood by employees.

Building strong relationships and communication with your employees is extremely important when it comes to a company’s growth and success. The prevention of fraud can be possible when you maintain strong interactions and communication with your employees. Moreover, segregation of duties is one way by which you can track your employee’s productivity and performance. The employees who have the courage to steal from you can be traced easily when roles and duties are assigned respectively. Bookkeeping records can reveal who is stealing from you; it just takes effective monitoring and tracking.

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 in a suit holding his hands behind his back with stack of dollar banknotes in one and fingers crossed on
According to a report published by the Society for Certified Fraud Examiners in 2016, 30% of frauds occurred in small businesses with less than 100 employees. Small businesses have less anti-fraud reins in place than large organizations that make them especially defenseless to fraud. Frauds are common in small businesses because they lack special security check-ups and foolproof systems. A small business may have installed accounting software but the accounting software for small business may lack many security features reserved for software purchased by big corporations. A simple reason for this is the price difference in this software and many business owners go for the cheapest option. 

If a small business owner has a stellar accounting software, the chance of fraud still remains, unfortunately. In small businesses, many times a single person is entrusted with operating all of the accounting and bookkeeping functions. Passing all of the bookkeeping into the hands of a single person is a major reason for small business frauds. 

This person in a small business, in charge of all of the accounting and bookkeeping functions, is most likely the most trusted employ in the company.

Best Employee or Fraudster?

Let us portray how the “best employee” could actually be stealing money from your business. If you find the following unusual behavior in your best employee, they could turn out to be someone different than you thought.

Unusual working hours

When there is a single employee performing all of the bookkeeping functions, they might have to work long hours. And, of course, most of the time, that doesn’t turn out to be a problem.  However, this routine could be a warning sign.

If an employee has a routine of unusual working hours, there is a possibility that they are involved in some kind of fraudulent behavior with your business bookkeeping. If the employee regularly leaves late and works overtime without asking for extra pay,  it could be a sign of some kind of “special interest” in your business.  Like most of us, you think this is going in your favor, but the case might be the complete opposite.

Refusal to leave bookkeeping tasks to others

If an employee is working hard for a company but is not willing to leave any accounting and bookkeeping work for others, a check on their activities must be kept. They might be involved in fraudulent practices.  If the employee refuses to allow others to look at their work or regularly gets offensive when asked about it, this is a warning sign.

Too much access

If you have given too much access to the financial bookkeeping of your business, your business is already at risk of fraud. A single employee should not be given all of the access to receiving cash, payments, tracking expenses and various other bookkeeping functions. Delegate employees for different steps of the bookkeeping management. There should be separate people for bank transactions, expenses, receiving cash from customers, paying bills, and bank deposits.

Your trusted employee is spending lavishly

If your employee starts spending more than normal, keep a close eye on their activities in your business functions. They might be involved in some kind of fraudulent practices. A fixed pay usually does not leave room for spending lavishly all of a sudden. 

How to Spot the Fraud

Difference in accounting statements

Whether you have an electronic system or your accounting statements are done manually on a register, the financial statements should match with the cash flow statements and balance sheet. In manual bookkeeping, there is always a chance of an honest error, but keep an eye on any difference in the number of accounting statements just in case.

Match the transactions with real bills and invoices

If there is more than one payment for a single bill, it again might be the case of fraud. Keep an eye on the bookkeeping in your business. Check the bills for duplication.

Audit

A business ready for an audit at all times is a business with lesser discrepancies. Conducting regular audits will discourage employees from committing fraud or theft as there is more of a chance they will be caught.

Conclusion

The concept of your “best employee” in a small business can be dangerous. If your best employ has any of the above suspicious behavior, it’s time to take the steps to ensure your business is safe. Dividing job responsibilities, reviewing all monthly reports, and limiting manual payments can actually prevent your employees to make the decision to go down that road.

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.