No matter how big or small your business may be, employee theft will continue to eat a significant portion of your annual revenues and profits. It is something that has been around since the beginning of time. No one can deny that businesses are vulnerable to fraud, primarily SME entities that suffer excessively huge losses from fraud. SMEs must ensure adequate internal controls to create a favorable profit-producing environment. However, you may believe that fraud cases are found in large-scale companies with thousands of employees in multiple locations. SMEs are victimized, and employees tend to steal from smaller businesses more frequently than larger organizations.
SMEs Are Vulnerable to Employee Fraud
Today, organizations have mixed opinions on dealing with fraud cases. Some are proactive and instill policies for prevention; some are lenient and show more sympathy towards their employees on personal grounds. According to studies, organizations with fewer than 100 employees are more vulnerable to employee fraud as they account for the highest percentage of fraud. SMEs are more inclined to generate sales and profits and care less about maintaining effective internal controls and reviewing their bookkeeping records with a fine-tooth comb. Each year, SMEs lose billions of dollars in annual revenues and profits worldwide, showing that employee fraud is inevitable and hurts a business’s integrity.
Fraud Can Be Prevented
With innovative tools, techniques, and practices, fraud prevention and detection is possible. It would help to choose the right prevention option by comprehensively analyzing your business. No one knows a business more than its owner, and owners can potentially change the fate of their company. They know their business’s strengths and weaknesses and can turn things around in their business’s favor. In organizational setups, SMEs have scarce resources that they need to ensure that everything is under control or not. Business owners must know how to create and maintain internal controls by implementing a properly designed fraud prevention and detection plan with limited resources.
Why Do Employees Steal from Their Company?
Two primary reasons employees get involved in fraudulent activities in an organizational setup are when they are undervalued and underpaid. These two things work as fuel for them, and if it’s not there, the employees feel discouraged, demotivated, and left out. Moreover, you can only expect your employees to work efficiently if the owner ensures both. When these two things aren’t there, the owners can expect their employees to be involved in fraudulent activities through various means. Organizations can catch up with their fading fate by creating, implementing, and practicing the proper internal controls.
Corruption Ruins the Business
Moral and financial corruption eats up an entire organization, slowly and gradually. Diminishing profit margins and draining profitability lead a business toward a complete disaster. Owners eager early on to get their organization’s operations back to normal may have a slight chance of success. But, those who react when the time has passed achieve very little or no success. Some organizations choose to hire professional managers who can turn things around on their organization’s behalf. Hiring professionals seems wise, especially for those good at yielding sales and profits but lacking the managerial skills to maintain the proper internal controls.
Maintaining Effective Internal Controls
Organizations need to prevent and detect fraud in a way that others working in the company don’t notice. Companies can often overcome business challenges effectively by slightly modifying the existing organizational processes. Sometimes, they are successful; sometimes, they fail. It all depends on how well you leverage your internal controls. For a typical company, separation of duties is a critical tool that helps evaluate performance on an individual scale. This way, you get to know whether your employees are stealing from you, and if they are, you will know who is stealing!
Additionally, it would help if you ensured that your employees abide by the policies and procedures. Encourage your employees to document everything to know what is lacking or where the problem is. These are some of the ways by which you can maintain proper internal control in your organization.
In conclusion, the threat of employee theft looms large for businesses, especially SMEs, facing significant financial losses annually. The vulnerability of smaller organizations to fraud necessitates proactive measures in implementing robust internal controls. While fraud is prevalent, prevention and detection are possible through innovative tools and a well-designed plan tailored to the business’s unique needs. Business owners play a crucial role in understanding and addressing the root causes of employee theft, such as undervaluation and underpayment.
By creating a work environment that values employees and addressing issues promptly, owners can significantly reduce the risk of fraud. Whether moral or financial, corruption poses a severe threat to businesses and requires a timely and strategic response. Effective internal controls, such as the separation of duties and adherence to policies, are instrumental in identifying and preventing fraud discreetly. Maintaining a vigilant approach and encouraging transparency within the organization are crucial elements in safeguarding against the detrimental impact of employee theft.