Is Your Business at Risk for Employee Fraud?

Employee Fraud

You might be surprised to learn that, on average, seven percent of annual business revenues are lost to employee theft or fraud. In a recent report, the Association of Certified Fraud Examiners revealed that U.S. employees steal about $50 million per year from their employers, with nearly one-third of all company bankruptcies caused by dishonest employees. Employers in every industry need to identify the areas of their business that are at risk for fraud and employ strategies to prevent fraud as quickly as they can.

You might think you’re immune to this problem because your business isn’t in the financial sector or you don’t deal with sensitive client information. Sadly, that’s not a safe assumption. Any business is susceptible to fraud. Three main risk factors make you more likely to be a victim of employee fraud. The first is motivation on the part of the scammer, who might be an employee with financial troubles, substance abuse problems, or a reason to dislike you. The second risk factor is opportunity: An employee who steals first has to have access to company money, products, sensitive information, or something else that has value. The third risk factor is related to the psychology of internal theft. Employees often rationalize their decisions to steal, perhaps by trying to convince themselves the money they steal is just a loan or that the company is doing well and won’t miss whatever they steal.

Effective Prevention Strategies

If you want to put your company in the best position to counter employee fraud, first you have to implement policies that discourage people from attempting fraud as well as procedures to detect fraud when it occurs. Start by maintaining a positive relationship with your staff, which is a critical component of a fraud-prevention program in any business. If you don’t already do so, perform background checks, including credit checks, on all new hires. You also need to inform every employee and any new hires that your business will not tolerate any kind of theft or fraud, and be specific about what that means. It’s important to describe what the company will do if any such incidents take place. Unfortunately, you cannot prevent every theft; however, you may just be able to detect problems early in the game with the right procedures in place.

If you don’t already have it, create a highly detailed, up-to-date record keeping system for both incoming and outgoing funds. In addition, set up a notification system whenever there’s a high-dollar purchase made, inventory is short, or a purchase order hasn’t been filled out. Establish a system of checks and balances that includes cross-training employees. Engage in surprise audits so that employees know their work might be checked at any time. Other possible deterrents include installing and monitoring 24/7 security cameras and implementing work shifts where no employee is ever totally alone on a shift.

Finally, don’t be lulled into a false sense of security just because you have created what you consider a sound anti-fraud policy. Good security requires regular reviews of the policies and procedures in place; take immediate action to update areas of concern as needed. Crooks are always coming up with new ways to steal, trying to remain one step ahead of detection. Don’t let complacency take over your efforts to safeguard your business from con artists.

About Chuck Whitlock

Chuck Whitlock has written a number of books on scams and white-collar crime: Scam SchoolEasy Money, and MediScams. He developed his expertise on the subject of fraud and the psychology of those who perpetrate it while working as an investigative reporter for television and as a nonfiction author. Through keynote speeches, workshops, and other speaking engagements, he informs and educates audiences around the country. Audiences have included groups as varied as the American Bankers Association, the Better Business Bureau, the International Foundation of Employee Benefit Plans, the F.B.I., and the general public.