“She/ he was a trusted employee. I thought she/ he would never steal from me. We treated her/ him as a part of our family. “
Many times at Skalova, CPA, PLLC we heard these statements. They are heartbreaking, but what we learned is that nothing could be further from the truth. Skalova, CPA is a Forensic Accounting Company specializing in the investigation of employee theft, including fraudulent excess payroll, fraudulent vendor’s payments, misappropriated inventory and cash payments, etc.
Employee theft is a real and common problem in every type of business. No business is immune. Per the Association of Certified Fraud Examiners, organization losses approximately 5% of revenues in a given year to fraud. Small businesses are especially hit hard by employee theft and might never recover due to such loss.
There isn’t one simple method that will prevent your employees from stealing but there are several actions you can take to decrease the amount of theft.
1. Conduct a Background Check
One of the simplest things you can do is to perform a background check on your potential employee before they are hired. It is not a complicated process, and there are many affordable services online.
All of your potential hires must be subject to the background test. Make sure that each prospective employee understands that you will conduct a background check and agrees to it in writing.
Looking into a person’s past is not going to tell you everything you need to know, but even a simple investigation into a person’s past can provide at least some peace of mind when hiring a new employee. This due diligence process can help your rest easy knowing you started the hiring process in the right direction.
2. Set up a Tip Line
The Association of Certified Fraud Examiners found that approximately 42% of theft were discovered by tips from other people. From that group, 49% of the tips were from fellow employees.
Today, employees prefer to complete a simple form than to make a phone call. One easy way is to create a simple online form that employees can fill out to report fraudulent activity. A tool like Google Forms is free and easy to set up.
By creating an online form with just a few fields to fill out, you’re making the process of reporting fraud as easy as possible for everyone.
3. Segregate Internal Controls
Especially at small companies, this might be challenging to implement. The owner of the company will have to be more diligent and review the employee’s processes and job descriptions more closely to reduce opportunities for fraud.
Segregation of duties means that no one employee is responsible for completing all parts of a financial transaction from start to finish. For example, one person shouldn’t be tasked with both writing and signing checks, working and reconciling a cash register, or performing bank statement reconciliation.
If possible rotate financial duties periodically and provide mandatory vacation time for employees. This makes it harder for potential thieves to set up fraudulent schemes unnoticed. An implemented system of checks and balances helps to detect fraud faster and might prevent it from happening in the first place.
Employee theft is something that you will constantly battle when running a business. There’s no one solution to eliminate the threat. Combining the suggestions described in this post is a good way to start to minimize fraudulent activity at your company.