Hiring employees you trust is a fundamental part of running a small business. After all, the whole point of bringing on more help is to delegate responsibilities to other people. Unfortunately, employee theft is a real threat that can yield disastrous results for your business. According to the 2016 Report to the Nations on Occupational Fraud and Abuse, certified fraud examiners estimate that the average business loses 5 percent of its total revenue to fraud every year.
While there’s no “silver bullet” to prevent fraud, understanding the vulnerabilities in your business may help you spot suspicious activity early on. Here are five important areas you need to be monitoring for employee theft.
#1: Business Credit Cards
A company credit card can be a prime conduit for employee theft. It’s often all too easy for someone to include personal purchases alongside business expenses. How can a business owner make it more difficult for employees to disguise fraudulent charges?
First, pay close attention to your business credit card statements. Investigate anything you don’t understand or purchases that look suspicious. Keep a keen eye on fuel expenses for company vehicles to make sure no one is filling up their personal car on your dime.
Next, ask vendors to provide itemized invoices for purchases. Without a detailed breakdown of what you’re paying for, an employee may be able to sneak in their own expenses.
“Checks and balances” can be a business owner’s best defense against payroll fraud. If you have one employee handling the entire payroll process for your business, it can be easy for them to hide illegal activity. From paying phantom employees to signing off on inflated overtime, thieves who perpetrate payroll fraud have a range of different tricks and techniques they use to keep their misdeeds under the radar.
To help prevent payroll fraud, segment the payroll process among multiple employees so no one individual has control over writing checks. You can also review employee payroll details – like addresses, account numbers, Social Security numbers, and overtime hours worked versus what they were paid – to ensure that spending is appropriate.
No. 3: Procurement
Depending upon the size of your operation, you may do business with multiple vendors. When a dishonest employee connects with a greedy supplier, you could end up footing the bill.
One of the more common schemes is for an employee to add fraudulent charges to a purchase order. The supplier, who’s in on the theft, then invoices the business for the phantom goods or services. When the business pays, the employee and supplier split their ill-gotten gains.
Spreading the purchasing process among several staffers can help guard against procurement fraud. Task one employee with creating purchase orders, then have another approve them. Bring in another person to sign off on invoices. This is one instance where putting more “cooks in the kitchen” can actually help.
In addition, you should have a complete list of active vendors on file. Validate the list regularly to help prevent unauthorized or fake vendors from being added.
No. 4: Data and Information Systems
A company’s data is one of its most important assets. As a result, this information can be extremely valuable to competitors. But the reality of corporate espionage lacks classic spy-movie romance and heroism – it’s simply the effort of one business to steal secrets from another. Your data and information systems need to be monitored regularly for both internal and external intrusions.
Ensure that access to sensitive data is only given to those who need it to do their jobs. Establish a clear data security policy and make employees adhere to it. Proactive moves on your business’s part can help thwart a costly data breach.
No. 5: Sales and Receivables
Offering your sales staff commissions can be a powerful motivator. It might also encourage a thief to inflate their own receipts. For this reason, companies that pay commissions or bonuses based upon sales need to monitor these figures closely. Business owners should also make it a habit to review customer accounts for suspicious terms, large discounts, and other peculiarities.
Taking steps to prevent fraud is an investment in your business, where the ROI is protecting your bank account and reputation. While adopting the methods above may create some inefficiencies, deception and theft can be much more damaging.
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