Reducing Employee Fraud Risks

Risk Management

While no business wants to deal with the implications of employee dishonesty, the risk is particularly acute for smaller businesses. Not only do most small businesses lack the staffs and controls found in their larger counterparts, the often-close working relationships - especially with employees in trusted financial roles - means there’s often a personal aspect to the discovery of fraud and theft that compounds the sense of betrayal and loss.

Whether the loss comes from the theft or abuse of information, equipment, or cash, it can be magnified in some instances by the dishonest employee being a long-term member of the team and, in some instances, a family member.

One of the easiest ways to reduce the risk of employee embezzlement, or other forms of internal theft, is to establish procedures that ensure that the same person doesn’t oversee all aspects of a company’s financial system or processes.

For example, it’s important to make sure the same bookkeeper doesn’t write checks, make deposits, and reconcile bank statements. Allowing someone to fill all these roles means the company would lose an important opportunity to discourage or identify potential fraud or embezzlement.

Antifraud professionals say business owners should be aware of several "red flags" that may indicate fraud is taking place:

  • An employee apparently living beyond his or her means
  • Complaints about money problems or work conditions
  • A reluctance to take time off or share financial duties with co-workers
  • The appearance of unfamiliar vendors in your company’s check register

Fraud specialists also suggest a number of measures to help reduce the chance of your business being victimized:

  • Have monthly bank statements sent to your home or accountant, instead of to the bookkeeper writing checks
  • Review outgoing checks and deposits to make sure checks are sent to pay legitimate company expenses
  • Protect your physical checks to prevent the theft of checks form the back of unused checkbooks
  • Avoid signature stamps.

Have your company’s financial records audited annually. The additional cost will be offset by reduced fraud and the peace of mind that financial accounts are in order. Although these oversight activities take time, letting employees know that you’re keeping an eye on the books reduces temptation for workers to cut corners or help themselves to company funds or equipment.

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