Among the many threats to your business, one of the most critical is employee theft. You can actually encourage employee theft through a lack of financial controls, lax hiring and supervision and a casual attitude regarding policies and procedures. These failures in management can lead to an environment that is ripe for internal theft and fraud.
It is estimated that the typical business will lose an average of six percent of revenues from employee theft. The U.S. Chamber of Commerce survey reported that one-third of business bankruptcies are due to employee theft.
Small business owners can help protect their businesses from employee theft and fraud by following these eight recommendations.
Create a positive work environment. A positive and fair work environment with solid communication and documentation encourages employees to follow established policies and procedures.
Implement internal controls. Establish financial controls to create redundancy and accountability. No employee should be responsible for both recording and processing a transaction. Access to physical and financial assets and information should be restricted to authorized employees.
Hire honest people. Pre-employment background checks are an excellent way to cut down on hiring employees with sketchy backgrounds. A thorough pre-employment background check should include:
- Criminal history
- Civil history
- Driver’s license
- Education verification
- Employment verification
Provide a deterrent. Inform your employees about your policies and procedures related to fraud, and the organization’s code of conduct and ethics policies. Explain what procedures to prevent fraud are in place and how violations of these policies will be disciplined.
Implement an anonymous reporting system. Every organization should provide a confidential reporting system for employees, vendors, and customers to anonymously report any violations of policies and procedures.
Perform regular and random audits. Every company should have regular assessments as well as random, unannounced financial audits and fraud assessments. This is a regular reminder to all employees that fraud prevention is a high priority for the organization.
Investigate every incident. A thorough and prompt investigation will give you the facts you need to make informed decisions and reduce losses. Consistently investigate all policy and procedure violations, allegations of fraud, and warning signs of fraud.
Lead by example. Business owners and their managers should set the example for the organization’s employees. A casual attitude toward rules and regulations will soon be reflected in the attitude of employees. Every employee, regardless of position should be held accountable for his/her actions.
Implementing these recommendations can dramatically reduce the opportunity for employee theft and protect the assets of your business. If you suspect fraudulent activity by an employee, seek professional assistance to conduct the investigation. Determine what’s necessary to protect your business and prevent a recurrence.
