Protecting Your Small Business from Employee Fraud
It’s an unfortunate fact, but the biggest fraud risk to small businesses comes from the inside. The 2015 Hiscox Embezzlement Watchlist reported that 72 percent of federal actions involved employee theft at small businesses. The majority, four out of five, had fewer than 100 employees, and more than half had fewer than 25 employees.
That means that small, family businesses are at the most risk.
Following are some ways you can prevent becoming a victim of employee theft.
Develop a formal fraud policy. Focus on prevention. Policies that apply to everyone will prevent any employee from feeling singled out, and it can dissuade people from attempting a theft if they know there procedures in place. Review your process annually.
Promote a positive workplace. Appeal to employees who value integrity by establishing a set of values for your business. Promote honest daily interactions, practice what you preach, and show appreciation. Loyal employees may be less likely to betray you.
Fraud reporting. Provide employees with a low-risk way to report suspicious activity or concerns. For large companies, this could be an anonymous hotline. For small businesses, it may be the ability to request a one-on-one meeting with the owner outside of the office.
Invest in employee-theft insurance. You may never get reimbursed for the money or equipment stolen, so a smart precaution is to protect your business before theft occurs.
Have more than one person dealing with money. Have separate job functions for recording and processing transactions. There is accountability in groups.
Review bank statements. As a small business owner, stay updated on the status of your business’s finances. Online banking makes this simple. Monitor your monthly statements to keep an eye out for suspicious activity.
Employee background checks. A background check typically costs $10-20, but can prevent you from making an expensive hiring mistake by disqualifying job candidates who have a record of theft.
Protect passwords. Encourage all employees to change their passwords every two months to prevent a cyber attack. Remind them to never provide account numbers, pin numbers or passwords to anyone who has contacted them.
Maintain an inventory. Petty cash and expensive office tools such as computers, tools and other equipment should also be regularly monitored. Keep formal records on these items, who is using them, and update your files regularly.
In a perfect world, these precautions wouldn’t be necessary, but temptation is real and can overwhelm even long-term employees. Take steps toward prevention, and our hope is that you never experience the betrayal.