Protect Your Business Against Fraud
General Business News
Protect Your Business Against Fraud
Never Say Never!
The biggest mistake you can make as an employer is to blindly trust an employee. Sure, Jim has been a good and faithful employee for 20 years, but that doesn’t mean he is immune to the pressures of life outside of the office. White collar crime is typically perpetrated by people in a position of trust. The trust placed in them allows white collar criminals the access to company assets needed to carry out the crime.
Even exemplary employees can fall prey to outside pressures like drug abuse, financial difficulties and even feelings of being unfairly treated by you, their employer.
To Catch a Thief
Obviously, you must place some trust in your employees or your business will not succeed. The trick for you, as the employer, is to establish policies and procedures that will prevent employees from having the needed access to steal company assets.
Without a doubt, your greatest weapon is your own powers of observation. You look at everything surrounding your business with a critical eye. Shouldn’t you also observe the habits of your employees? After all, they are an asset of your business - and their well-being has a direct effect on successful operations. Some telltale signs that an employee may be committing fraud include:
- Sudden changes in lifestyle for no apparent reason. For example, Jane left the office yesterday in an old red convertible, but when she came to work this morning, you noticed a brand new Mercedes-Benz in her space. It would only be natural to ask how she could afford the new vehicle.
- Known employee financial problems. For example, you open the mail this afternoon and find a notification the IRS has placed a lien on Bob’s wages. Getting relief from financial pressures can be a powerful incentive to embezzle company funds.
Randy has been the controller at ABC Company for years. He comes in to work early and leaves late. He works so hard that he hasn’t had a vacation in the last six years. The guy’s an employer’s dream, right? Well, the sad fact is that Randy has decreased the company’s profit for each of the last five years by an average of $100,000. It seems he found it easy to hide the theft as long as he was in the office, but when Paul made him go on vacation this year, problems started surfacing.
The importance of establishing a strong system of controls cannot be overstated. Proper oversight will greatly reduce the potential for loss by convincing employees they cannot succeed in a theft. Finally, a strong control environment will help employees provide management meaningful information by which to run the business.
The old saying that “stuff runs downhill” is true in every business. You set the tone for your company. If you signal to your employees that it’s acceptable to cut corners and beat the competition by less than ethical means, they will begin to believe the same thing. Eventually, they will be able to justify actions that harm you by using the same reasoning you used to succeed, by harming your competitors. Set a tone in your company that ethics are valued above all else. Conduct your business ethically and your employees will be more likely to do so as well.
Finally, provide a way for your employees to report suspected fraud without risk. Many times, employees may see something going on that they consider wrong, but they won’t report it because the act involves their superior. Rather than lose their job or risk harassment, they choose to remain silent. Develop a way for employees to bypass the level at which the fraud may be occurring and make it clear that no employee will be punished for reporting possible illegal acts.
No system to prevent employee theft is foolproof, but there are steps you can take that cost you nothing, yet enhance the security of your company. Give us a call and let’s discuss how you can better protect both your business and yourself.
Have a great April.
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.