Did you know that small to medium size employers are often the most vulnerable to employee theft? Data for 2014 shows that 72% of employee fraud cases occurred in companies with less than 500 workers. In fact, 80% of those cases involved businesses with fewer than 100 staff members – half even involved companies with fewer than 25 employees! The problem areas for some business owners are that smaller companies often do not have internal controls in place to prevent theft. Another reason may be that they do not have the resources to police employees or could have an unwarranted amount of trust in individuals that plan to do the business harm. An interesting study of gender and employee dishonesty noted that female employees commit 60% of the crimes involving outright theft of funds or payroll fraud. Males are more likely to commit vendor fraud involving kickbacks or cronyism.
One highly-targeted industry is financial services with real estate and construction businesses not too far behind. The average loss due to fraud is over $270,000. But what can you do? We’ve put together some actions that employers can take to protect themselves.
Assign different employees to open the mail, balance the bank statement, and handle accounts payables/receivable.
Limit check writing to specific days and require the owner’s/multiple signatures on all checks.
Require that all staff take a minimum of one week of vacation to allow for a review of their performance including procedures and responsibilities.
Track all coupon and gift card transactions.
Review your vendor history to make sure favoritism or kickbacks to employees are not occurring. A red flag to look for is if one subcontractor is getting all jobs. Check the bidding history to see if they offer the best deal every time and whether or not it’s being opened to multiple vendors.
Conduct thorough pre-employment screenings.
Create an anonymous reporting system for employees to update management on suspicious conduct.
Trust your instincts! It’s ok to audit employee activity and you should do it at irregular intervals to avoid tainted data.
It’s important to know that most commercial business insurance policies will provide a minimum coverage for employee theft. However, you should talk to your agent about crime coverage that will protect you not only from outside threats but also insulate you from employee fraud. Remember – it can happen to you!