4 Tips to Prevent Small Business Employee Fraud and Theft

The U.S. Chamber of Commerce estimates that 30 percent of small businesses fail because of employee theft,  three-quarters of all employees steal one time, and over 35 percent of those employees steal more than once, reports Human Resources Executives Online.  Employee theft isn’t just the stealing of paperclips, Post-It notes, and other office supplies, stealing company time, confidential information, and company merchandise all all areas that fall under the employee theft and fraud umbrella.

Pay attention to these five tips to prevent small business employee fraud and theft in your organization:

1) Hire honest people. Short of conducting a lie-detector test (which is prohibited by the Employee Polygraph Protection Act for most employers for pre-hiring screening purposes) on every applicant, how can you gain some comfort level that you’re not hiring a dishonest person?  For one, be sure to conduct background checks before hiring new employees. Conduct education verification checks to verify degrees and employment checks to verify positions, length of employment, and reasons for leaving. Perform a drivers license verification to check for serious violations. To check for crimes of violence, theft, and fraud run a criminal history check. It’s important to note that under the federal Fair Credit Reporting Act, some information, like education credentials, must be given retrieval approval by the potential employee before the employee can request it. To take it a step further, before handing over a job offer, check with references like a former boss. If there’s been theft or fraud issues, he’ll most likely know about it.

2) Implement internal controls. Internal controls include procedures that include separation of duties, control access, and control authorization, which are particularly important in financial and accounting transactions. Internal controls should also cover safeguarding of company assets and compliance with laws and regulations.

3) Perform scheduled and unscheduled audits. Audit can be a significant deterrent against employee theft and fraud because perpetrators tend to seize opportunities where they view internal controls to be the weakest. If you don’t have the resources to patrol all areas of your business, identify high-risk areas, such as cash and sales reconciliations, and expense reports for audit inspections. Don’t forget to conduct unannounced, random audits which may also serve as an impediment to temptations by would-be wrongdoers.

4) Educate Employees. Your employees should be fully aware of your business policies and procedures with respect to fraud, including the internal controls in place to prevent fraud and how violations of policies and procedures will be disciplined. One of the best ways to prevent employee theft and fraud is communicating that it is not tolerated in any shape or form in your small business.

Following these 4 tips to prevent small business employee fraud and theft will leave your organization less ripe for one of the most serious threats to the success of a small business.