Fraud costs American businesses, large and small, a ton of money each year. In fact, according to theMcGladrey report The Threat Within: Employee Fraud Detection and Prevention, fraud took a huge toll on American businesses, to the tune of nearly $1 trillion dollars, last year. The problem only seems to be worsening with the volatility of the economy. That’s why it’s so important to focus on prevention rather than trying to recover losses after the fact.
Small businesses are even more vulnerable to employee theft because they lack the level of internal control and security that larger businesses often have in place. For these reasons, you need to work now to come up with an effective method for deterring employee fraud and theft.
Here are a few of the steps you might want to take to prevent and/or detect fraud in your small business.
Require Employees to Take Vacation
People who take small amounts of cash (or merchandise) day in and out aren’t always easy to discover because the money of goods consistently comes up missing. However, many of these cases are discovered when the employee goes on vacation and isn’t there to take from the till as the case may be. That’s why it’s so important to require employees to take their vacation time and rotate them throughout the year.
Train Managers and Employees to Spot Fraud
The problem with many managers and employees is that they’ve been trained to do the jobs they do well. Unfortunately, most of them were not trained to spot or prevent fraud or employee theft. This means it’s up to you to provide them the training they need to spot it in other employees.
Create a System of Internal Audits
It’s more than simply having someone else double checking all financial records. You should not have multiple employees working from one cash register or bank account. You should also take care that you don’t have the same person writing checks for merchandise and inventory and verifying the numbers. That invites situations where items or money gets skimmed from the top.
Conduct Background Checks on New Employees
While many small businesses consider this to be an expensive proposition, the fact remains that discovering a history of fraud or embezzlement before you hire someone can save you a lot of potential money and grief. In addition to checking for a history of financial crimes you can also check for violent crimes, computer hacking, and predatory practices for the safety and security of your other employees as well as your business reputation.
Invest in Business Crime Insurance
Finally, all businesses need to invest in adequate commercial crime insurance coverage to help protect them, financially, from some of the losses associated with fraud and/or embezzlement. Prevention is always the best cure, but having insurance like this can help you avoid a catastrophic loss due to the crimes of employees.
These things will not eliminate all employee related theft in the workplace, but when used in combination with other security measures to deter theft can make your business less attractive for employee theft.