contact: mmcconnell@mm-cpa.com
November 2009
Take four steps to help prevent employee fraud
Small businesses are especially vulnerable to employee theft and other types of fraudulent activity. One recent study — based on data compiled from 959 cases of occupational fraud — found that small organizations (those with fewer than 100 employees) suffered median fraud losses of $200,000. The typical fraud (check tampering and fraudulent billing were especially common) lasted two years from the time it began until it was caught by the victim organization.
Why are small firms so susceptible to fraud? For one thing, small businesses often can't afford — or owners don't see the need for — regular audits. As a result, embezzlement and misappropriation schemes may go undetected for months or even years. Also, small companies, by definition, have limited staff. Fewer workers can make it difficult to implement strong controls — for example, the separation of the cash handling and bookkeeping functions. In addition, small businesses often live and breathe a culture of trust. Of course, that's one of the great appeals of working for a small company. But a culture of trust can be a two-edged sword. Managers sometimes learn, too late, that their trusted long-term employee has been bilking the company out of thousands of dollars.
How can you prevent employee fraud in your small company? Here are four suggestions.
According to the FBI, there are over 14,000 scam artists at work on any given day. Perhaps the information presented here will help you avoid becoming a victim. If you have questions, please call us. Remember, if it sounds too good to be true, it may well be a scam.
- Screen job applicants carefully. Go the extra mile and check work references, criminal records, and professional recommendations. One study found that about 7% of employees have a history of occupational fraud. By instituting a policy of background checks, you may save a lot of cash and years of grief.
- Reconcile bank accounts. It's surprising how often fraud is prevented and detected by this simple procedure. If an employee knows that someone else, be it management or a fellow worker, reviews deposits and disbursements on a regular basis, he or she may decide to forego that fraudulent billing or cash skimming scheme.
- Secure inventory and supplies. This can be as simple as regularly changing combinations on warehouse doors or locking supply cabinets. Laptop computers are especially vulnerable to theft, so making sure they're secured should be a priority.
- Get a cash control review. Having a trained set of eyes inspect your books, records, and operations can pay for itself many times over. Skilled auditors can ferret out scams and help your business develop stronger controls against criminals, both outside and inside.
If you'd like assistance with this or any of your business concerns, give us a call.
