HOW TO INSULATE YOUR BUSINESS FROM EMPLOYEE FRAUD.
Did you know that most employee fraud is by employees who have worked in a company for many years and are trusted very much by the owners? Small and medium-sized businesses are most vulnerable to fraud than established organizations. Due to the low economies of scale, small and medium-sized businesses are mostly damaged beyond recovery by employee fraud. Employee fraud can fall into three types: Theft, Financial statement fraud, and asset misuse. The most dominant types of fraud are theft and asset misuse.
Theft can range from directly stealing cash, claiming bogus expenses, to taking other company property. Employee fraud includes setbacks and schemes in which the employees benefit personally by violating their responsibility to the employer.
Due to several factors, small and medium-sized businesses face a greater risk of fraud than larger organizations. These factors can include one employee performing many functions across the organization, less expertise on financial matters, close relationships between staff, lack of formal oversight procedure, among other factors.
To insulate your business against employee fraud, you can take these vital steps to deter and detect fraud as soon as possible.
- Know Your Employees.
The best way to know your employees is through a thorough hiring routine. You can prevent employee fraud by hiring honest employees when you have a hiring practice. Background checks should be mandatory for all employees handling cash and customer payment information. Employees’ level of interaction with company finances should call for better scrutiny into their past. Not to burst your bubble concerning your favorite employee but employees committing fraud often go out of their way to earn trust. They will put in extra work and rarely take time off. The result is the employee taking on more duties and less oversight. Requiring staff to take vacations can help expose fraud and help relieve the honest overworked employees.
- Audit The Books Regularly.
It would help if you made an unannounced internal audit and the annual audit by an external firm. Small and Medium-sized businesses should audit areas that deal in refunds, cash, product returns, inventory management, and general accounting functions.
While at it, instead of having one person handling all bookkeeping functions such as accounts receivables, paying invoices, and managing cash, you should have at least two people taking these functions interchangeably. Segregating accounting duties can help eliminate, if not minimize, employee fraud.
- Keep An Eye On The Business Bank Accounts.
With everything going online, consider online banking options. This will make it easy for you to view the account activities and generate statements whenever convenient. This ensures that paper-based reports are not manipulated. Simply letting the staff know that you are reviewing the account’s activities will deter fraud in the business.
- Set Up Reporting Mechanisms For Fraud By Employees.
Employees should be trained to know the warning signs of fraud and report suspicious actions by their co-workers. When setting up these mechanisms, you need to avoid sending the message that you don’t trust them. Establishing anonymous reporting systems can put their minds at ease about letting you know about a particular worker. Verify the accusations by investigating to determine the extent of fraud and the methods used. It will prevent you from making false accusations and possibly facing a lawsuit.
- Maintain Internal Controls.
Small businesses should create and maintain internal controls that can prevent and detect fraud in the company. Maintaining internal controls can include establishing multi-person sign-off on expense reimbursement, overtime, and other accounting functions.
Employees who usually steal have worked for several years in the business before starting to steal and continue for approximately three years before they get caught. That can generate significant losses for the business. You can take all the mentioned measures, but what is essential is operating the business ethically. Identify Organizations like Twiwane that offer courses on business ethics, and you will reduce the chances of fraud occurring in the industry. For more details about Business Ethics, check out our report on business ethics and get more skills about how to deter fraud in your business.