Don’t Become a Victim:
Stop Employee Theft Before It Starts

Many business owners may think of a typical thief as someone breaking and entering, wearing a ski mask and dark clothing, and looting a business. That’s why most are shocked when they learn that a seemingly trustworthy and devoted staffer or executive has been stealing them blind.
Employee fraud can devastate a business and its owners in terms of financial and legal liability costs, and public reputation.

A Very Costly Problem
A recent study by the Association of Certified Fraud Examiners found that U.S. businesses lose five percent of their revenue each year to employee fraud. The report places the median loss at $159,000, and states that nearly 25 percent of the cases cost the company $1 million, with some costing as much as $1 billion or more.

What accounts for that high price tag? The laundry list of opportunities for theft and misappropriation in your business can involve the following:

• Inventory and merchandise
• Supplies, equipment and computer programs
• Intellectual property and trade secrets
• Checks and petty cash
• Sales, invoices and accounts receivable
• Time reports
• Expense claims and payroll
• Investments and assets
• Tax withholdings
• Workers’ compensation injury claims

Some fraudsters may even go so far as to extort money and threaten a company’s employees or property.

Preventive Measures
In addition to taking more obvious measures, such as watching for unusual employee behavior, securing company property and installing security cameras, consider these fraud prevention measures:

Prescreen employees
Conduct thorough background checks on all new hires, including criminal, education, prior employment, residence, credit, Social Security number, driving record, and professional affiliation and license checks. But first, consult an employment attorney to make sure your background checks are in compliance with federal, state and local laws.
Implement standardized practices and controls. One of the most effective ways to minimize your company’s risk of fraud is to implement standardized business practices and controls for financial and asset management. For instance, make sure you:

• Password protect and limit access to company information, financial systems and assets,
• Create a system of checks and balances by segregating employee duties,
• Require management authorization of time reports, purchases and expenses,
• Require two signatures on checks over a specified amount,
• Use prenumbered checks and never sign blank checks,
• Review and reconcile monthly bank statements and voided checks,
• Track and verify the number of employees on your payroll,
• Conduct regular reviews of financial records and performance, and
• Perform regular and surprise audits.

Educate employees on reporting fraud. Develop and communicate a written company policy on your employees’ obligation to report any fraudulent activity or suspicions and the consequences of committing fraud, including termination and criminal prosecution.

Explain how employees should report fraud, such as through an anonymous fraud hotline, and why doing so will benefit both employees and the company. Remember, your employees are your eyes and ears.

Companies that demonstrate caring for employees such as through realistic work expectations, fair compensation, and employee counseling and support programs may help further win employee support for reducing the risk of fraud.

Leverage Outside Help
Consult a certified fraud examiner to help design an effective fraud prevention program and have a CPA perform an independent audit annually. Also, consider purchasing a crime insurance policy that specifically protects your business against various forms of employee theft that aren’t covered under basic business or property insurance.

And if you suspect your company may be a victim of fraud, make sure you obtain legal advice on how to conduct an investigation without compromising employee privacy rights.